& have spent After 2019, the issuance pace of local government bonds in 2020 was further accelerated. Henan and sichuan are the first cities to issue special bonds this year. On January 2, they issued 51.9 billion yuan and 35.671 billion yuan of new special bonds respectively.

Two rings a day. On January 2, henan and sichuan provinces issued 87.571 billion yuan worth of special bonds, kicking off the New Year's issuance of local government bonds. Compared with previous years, the pace of this year's release is more hurried.

In the current economic context, the across-board dedicated debt will no doubt be expanded further in 2020, said David middot, managing director of local government and public institutions at moody's. In an exclusive interview with China business news recently, David Rubinoff said that the scale of special local government debt in China is likely to exceed 3 trillion yuan in the New Year.

Despite the expansion, local governments still have a funding gap. At the same time, the difference of fund gap in each region is also obvious, and there is the possibility of local risks in some regions due to excessive debt scale.

release pace further accelerated

After 2019, the issuance pace of local government bonds in 2020 was further accelerated. Henan and sichuan were the first cities to issue special bonds this year, issuing 51.9 billion yuan and 35.671 billion yuan of new special bonds on January 2, while last year, the first special bonds were issued by xinjiang on January 21, 2019.

In addition to henan and sichuan, several other regions have announced plans to issue some new special bonds in 2020. According to huaxi securities, by the end of December 2019, 10 provinces, cities and autonomous regions, including sichuan, shenzhen, henan, yunnan and Qingdao, had released relevant plans, with a total issuance scale of 303.43 billion yuan, of which nearly 76 percent were scheduled to be issued in January.

Earlier, the ministry of finance also issued a trillion yuan special debt quota for 2020 ahead of schedule, an increase of 190 billion yuan compared with the same period last year. According to the analysis of insiders, the issuance of local government bonds for the whole year of 2020 is relatively smooth. According to the scale and pace of monthly repayment, June may also become the peak issuance of local government bonds, especially special bonds, in addition to the beginning of the year.

& other; The special debt quota for 2020 was issued earlier for the same reason as last year, all for the convenience of infrastructure construction. The special debt quota has been increasing every year. It is estimated to be around 3 trillion yuan in 2020, a significant increase from 2.15 trillion yuan in 2019. Throughout the &; David told China business reporter.

In addition to the advance of the issuance date, according to the released statistics, the new issuance scale of special bonds in January 2020 was higher than that in the same period in 2019, and the duration was also extended. To be specific, the plan for new special bond issuance announced in January 2020 has reached 229.33 billion yuan, exceeding the 141.2 billion yuan issued in January 2019. Considering that the following special bond issuance plans will continue to be announced, the scale of new special bond issuance in January is expected to increase further. In addition, from the perspective of the average maturity of bonds, the weighted average maturity of special bonds released in the issuance details in January 2020 is 14.5 years, significantly higher than the weighted average maturity of new special bonds in January 2019 of 5.8 years.

The lengthening of the issuance period is due to the relaxation of the issuance period of local government bonds at the policy level. Last year, the ministry of finance mentioned in an article that it would no longer limit the maturity ratio structure of local government bonds. For special bonds, we will gradually increase the proportion of long-term bonds issued to better match the capital needs and duration of projects. For general bonds, we should reasonably balance the size of each maturity, to meet the term preference of more types of investors.

A brokerage analyst told reporters that the lengthening of maturities on the other hand can also ease local government refinancing pressure in hidden debt. Control increment and change stock ” Moreover, under the background of stricter supervision, the issuance of long-maturity local government bonds will be conducive to preventing and resolving local debt risks.

It is worth mentioning that, different from last year, many in the industry expect that the proportion of special debt invested in infrastructure will increase significantly this year, which is expected to half, thus driving the recovery of infrastructure growth. This is mainly because the regular session of the NPC in September 2019 made it clear that no new special bonds issued by local governments in advance in 2020 could be invested in projects such as shantytowns and land storage. Therefore, the previous investment in shanty renovation, land storage and infrastructure caused by the ldquo; Extrusion effect ” Will be weakened. And judging from the 73 new special debt funds already announced, the proportion of investment in infrastructure has indeed gone up significantly.

According to statistics, of the 2.15 trillion yuan of special bonds issued in 2019, about 31 percent were earmarked for land reserve and 34 percent for rebuilding rundown areas, while only 35 percent, or 64.5 billion, was invested in infrastructure.

David told reporters that under the guidance of relevant policies, the proportion of funds invested in infrastructure is expected to increase in 2020. In the context of the large increase in the overall issuance of special debt, the scale of infrastructure investment will be significantly improved compared with last year. In addition, some special bond investment areas were added last year, such as urban and rural development and cultural tourism. This year, special bond investment areas will be more diversified.

In addition, the scale of special debt funds used for project capital can not be ignored to leverage the role of infrastructure. According to the regulations, the scale of special debt as capital can account for about 20% of the scale of special debt of each province. This means that if the amount of special debt used for capital is as high as 200 billion to 300 billion yuan, infrastructure projects of 1 trillion yuan to 2 trillion yuan can be leveraged based on the capital ratio of 15% to 20%. However, among the newly issued special bonds in 2020, there are more new special bonds used as capital.

steady growth and stable leverage “ Dilemma & throughout;

In the current background of economic development, special debt has been regarded as the main short-term countercyclical policy “ Regulator & throughout; But despite the expansion of its issuance scale, it is not negligible that local government debt repayment pressure is still large.

& other; The main problem is that there is a large funding gap in the real income and expenditure of local governments. Even if there is a quota for issuing bonds, this quota is likely to fail to meet the funding gap, which is the most important factor affecting local credit risk. Throughout the &; David told China business news. In this case, we need to rely on state-owned enterprises, mainly local government financing vehicles to play a financing role. Throughout the &;

The latest figures show that by the end of November 2019, outstanding local government debt nationwide stood at 2,1333.33 billion yuan, including 1,1879 billion yuan of general debt and 9,454.3 billion yuan of special debt. Government debt is 2.1114.3 trillion yuan, and government debt in the form of non-government debt is 219 billion yuan. In terms of maturity, the average remaining maturity of local government bonds is 5 years, including 5 years for general bonds and 5.1 years for special bonds.

David believes that, taken as a whole, the credit risk of local governments in China is controllable, the systemic risk is very low and the leverage ratio is low compared with the international level. & other; Internationally, local governments in countries such as Germany and Canada have high debt loans and leverage ratios, while China's debt is growing, but not to the limit. Throughout the &; He said.

But that doesn't mean China's local-government debt risks can be ignored. Mr. David said local governments still face significant debt-service pressures in 2020. In addition, the already high leverage ratio of local state-owned enterprises is also testing the credit quality of local governments. According to moody's, by the end of September 2019, the leverage ratio of local soes was 62.2 percent, down 1 to 2 percentage points from the level of the past five years, but still relatively high. Coupled with limited profit growth, profits in the first nine months of 2019 were 4.9 percent of total revenue, slightly lower than 5.1 percent in the same period of 2018.

At the same time, the difference of fund gap in each region is also obvious, and there is the possibility of local risks in some regions due to excessive debt scale.

& other; The fundamental way to ease the burden of local debt is to find a rebalancing between local income and spending, which emphasizes more responsible spending, such as fiscal discipline, a focus on disposable income, and long-term planning. Throughout the &; But it's also important to note that as long as the funding gap persists, local governments will accumulate debt to pay for local infrastructure, Mr. David said. This also reflects the difficulty of stabilizing growth and leverage at the government level.