CNPC standing committee sanctions RMB 1.39 trln of local government annual debt quota
Jan 03, 2019 (China Knowledge) - The Standing Committee of the China National People’s Congress (CNPC) has officially authorized the release of debt quotas for local governments for this year in advance to allow them to hedge against economic fluctuations and relieve debt servicing pressures.
In addition, such advance release of debt quotas will also be authorized starting from this year.
The advance release this year involves RMB 580 billion in general bonds and RMB 810 billion in special bonds, totaling RMB 1.39 trillion worth of new local government bonds.
General bonds are used for non-profit public welfare projects and are repaid from the general public budget income in both principal and interest. Special bonds are used for public welfare projects that generate income and are repaid from government funds and income earned from the projects.
Previously, local government debt quotas were only released during the second half of the year, resulting in a lack of funds during the first half of the year and puts a drag on economic growth.
For example, last year no new bonds were issued by local governments from January to April while most of the RMB 2 trillion in new bonds were issued from June to October. This resulted in large fluctuations in the basic asset supply in the bond market and put increased pressure on interest rate pricing, liquidity, management and transaction volumes.
The earlier release of quotas will allow governments to better respond to the macroeconomic environment and ease repayment pressure by allowing old bonds to be repaid with new ones.
The scale of special bond issuance by governments has increased rapidly in recent years from RMB 100 billion in 2015 to RMB 1.35 trillion last year. This year, several experts expect more than RMB 2 trillion worth of special bonds to be issued.
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