More localities to have say in bond-funded projects

China is expected to allow more local governments to review and approve projects funded by special-purpose bonds this year, analysts said, as policymakers vow to "halt the decline in investment and promote its recovery" amid a complex external environment.

The analysts' comments came after a yearlong pilot program that granted 10 provincial-level regions greater say in fast-tracking their special-purpose bond projects showed initial progress, paving the way for a potential expansion of the initiative to more localities this year.

The move also aligns with the decisions made at the Central Economic Work Conference in December, which called for optimizing the management of local government special-purpose bonds.

In late 2024, the State Council, China's Cabinet, said in a notice that it would give provincial-level regions, including Beijing, Shanghai, Guangdong, Fujian, Shandong, as well as Xiong'an New Area in Hebei province, the authority to approve such bond-funded projects locally.

Prior to that, localities needed to seek approval from the National Development and Reform Commission, the country's top economic regulator, and the Finance Ministry, before selling the bonds.

Special-purpose bonds are issued to fund specific infrastructure projects, such as highways and industrial parks, that are expected to be market-operable and revenue-generating. Repayment is usually supported by the income generated after project completion.

An official at the Office of the Central Commission for Financial and Economic Affairs said in December that the government needs to effectively drive investment by making good use of funding sources such as local government special bonds.

An official from the debt management office of the Fujian provincial department of finance said, "We have streamlined the project review process. This shortens the application chain, simplifies management procedures, reduces communication costs and improves review efficiency."

"The progress of new special-purpose bond issuance in the aforementioned regions is notably faster than in non-pilot areas," said Yuan Haixia, dean of the research institute at China Chengxin International Credit Rating.

Yuan noted that in the first three quarters of 2025, the 10 provincial-level regions had issued an average of 94 percent of their annual special-purpose bond quotas, 25 percentage points higher than provinces outside the pilot program.

The delegation of approval authority and the accelerated issuance timeline in no way indicate a relaxation of the review standards.

An official from the Shandong provincial department of finance explained that compared to before the pilot, the province's review criteria have actually become stricter and more rigorous. Projects that exceed fiscal capacity, lack balanced financing returns, or which do not align with required investment areas will not be approved.

Additionally, various regions have driven down the interest rates for special-purpose bond issuance, reducing financing costs and alleviating interest burdens through measures such as assessing market conditions, optimizing issuance timing and adopting differentiated pricing strategies.

Data show that the weighted average interest rate for special-purpose bonds in Hunan province stood at 1.99 percent last year, down 34 basis points from 2024.

Special-purpose bonds have become a pivotal policy instrument for stabilizing investment.

In light of their critical role, policymakers could consider granting more provincial regions greater autonomy and flexibility in project review and management this year, analysts said.

The NDRC said in December that it planned to "research and adjust" the scope of the pilot program and refine the mechanism further.

Local authorities are also expected to front-load the issuance of the special-purpose bonds to generate economic gains as quickly as possible, setting the stage for a sustained economic recovery, said Wen Bin, chief economist at China Minsheng Bank.

In October, the Finance Ministry said it would move promptly to advance the issuance of the 2026 new local government debt quota. This will help local authorities to better support the funding needs of key projects in the first quarter of 2026.

This year marks the start of the 15th Five-Year Plan period (2026-30), with a substantial pipeline of key projects in infrastructure and public welfare requiring urgent funding. The early allocation of debt quotas will ensure sufficient financial support for project launch in the first quarter, Wen added.