MNI: China Speeds Up Special Bond Sales With June Target

China is accelerating the sale of local government special bonds to help boost infrastructure investment to turn around an economic slowdown, aiming to issue most of the annual quota of CNY3.65 trillion by the end of June, according to analysts.

Special bonds, to be repaid using income generated by the projects are seen as an important tool to drive investment and stabilise growth. Sales in May will exceed CNY600 billion to hit a new high this year, while that in June could reach as much as CNY1.42 trillion, according to a research note by China Industrial Secs.

It is reported that regulators in early May had urged localities to further speed up the bond sales and complete the annual issuance by end-June.

By the end of April, a total of CNY1.4 trillion new special bonds were sold, about six times those issued in the same period last year, according to Wind Information. The average monthly issuance was about CNY432.7 billion in Q1, while the pace slowed down in April with only CNY103.8 billion issued.

According to the calculation of Industrial Securities, 70.1% of the special bonds were invested in infrastructure construction from January to April, higher than the 66.1% in the same period last year.

Premier Li Keqiang this week urged local officials to put forward detailed pro-growth policies by end-May to bring the economy back to the normal track as lockdown curbs in Shanghai and elsewhere disrupt business. (SEE: MNI: China Faces Slow Recovery From Covid-19 Lockdowns)

STRONG INVESTMENT EXPECTED

Infrastructure investment rose by 6.5% y/y in the first four months, decelerating from Q1’s 8.5%, as local governments have shifted their focus and resources to deal with sporadic Covid-19 outbreaks since April, affecting the launch of projects.

While Ming Ming, chief economist at CITIC Securities and a former PBOC official, said it is expected to hit as much as 10% for the whole year amid the strong infrastructure push by the government. The figure may regain momentum from May to June as the epidemic gradually eases, likely to maintain over 10% growth in the first half of the year.

In the second half, the figure will be supported by the low base same period last year, and a marginal relaxation to local government financing vehicles which provide supporting funds to push projects forward, said Ming.

THOUSANDS OF PROJECTS

Local governments have prepared a total of 71,000 projects and newly issued special bonds should be quickly matched, according to the Ministry of Finance. While the State Council executive meeting this week also urged to make use of all such bonds by end-August.

A new batch of large-scale water conservancy projects, transportation, renewal of old residential areas, and underground pipeline network will be kicked off, and a new round of rural road renovation will be started, the meeting said.

Another infrastructure boost may come from the need of normalising epidemic controls under the country’s “zero-Covid” policy, such as building permanent makeshift hospitals and quarantine centres.