MNI BRIEF: Pressure Building On China Regions On Debt Rollover

Issuance of local government special-purpose bonds is expected to help raise about CNY5.5 trillion for infrastructure investment this year, but pressure from rolling over maturing debt may weigh on indebted local governments, according to a report by China Chengxin Credit Rating Company.

About CNY3 trillion of SPLG may be invested in infrastructure in 2021, with issuance peaking in Q2 and Q3. Investment would mainly go into projects including transportation, new energy and the like, the report said. Local government need to issue up to CNY3 trillion in general bonds to repay debt maturing this year, with about CNY1 trillion in SPLG also due, China Chengxin noted.

The report warned local governments are increasingly dependant on bond issuance to repay maturing debt given current fiscal revenue and spending are out of sync as economies recover from the Covid crisis. The authorities must improve the investment efficiency of SPLGs, the report indicated.

Chengxin also noted CNY9.3 trillion of corporate bonds will mature over the next three quarters, greater than the amount in the same period of 2020, which may bring increased default dangers as companies have not yet fully recovered from the pandemic, the report showed, noting a total of 69 cooperate bonds defaulted in Q1, mainly in the transport and real estate sectors.