MNI EXCLUSIVE: China May Move Up 2020 Special Bond Sales to 4Q

     BEIJING (MNI) - China could move up sales of 2020 infrastructure-backed

"special bonds" to the fourth quarter of this year to stabilize investment,

government advisors told MNI, though there is concern the move won't deliver the

expected boost to economic growth.

     "The issuance could be moved up to Q4, given that the growing downward

pressure could threaten the annual growth target," said Zhang Bin, head of

global macroeconomic research at Institute of World Economics and Politics at

the Chinese Academy of Social Sciences (CASS).

     The government said earlier this month it will accelerate local special

bond issuance and announce some of next year's quota in advance. Normally the

year's special bond quota only begins to be made public around March, and bonds

are not sold until April or later. The market is thus expecting the

front-loading of the issuance plans to kick off as early as this year, as all

2019 special bond issuance must be completed by the end of September.

     Infrastructure investment growth is unlikely to rebound by year-end even if

sales are accelerated, said Zhang Bin, noting it's already dragging down GDP

growth. That's because special bonds have often replaced maturing debts rather

than funded new projects. Local governments also give priority to shanty-town

renovations while limited amounts are used for infrastructure, he said.

     Yin Jianfeng, deputy director-general of the National Institution for

Finance & Development (NIFD) at CASS, agrees bond sales could begin in the

fourth quarter. He's more concerned about whether the new quota can boost

infrastructure.

     --Q4 PICK-UP

     Other experts are more hopeful. Zhang Yiqun, director of fiscal studies

institute affiliated with the finance department of Jilin province, expects

infrastructure investment will pick up in the fourth quarter, supported by

unused funds from earlier.

     Zhang Yiqun says the growth target should be met this year as over CNY1.5

trillion of next year's quota would be announced in October, sales that may take

place in January. He also predicts special bonds for next year could increase to

CNY2.5 from this year's CNY2.15 trillion. This will add "certain pressure" to

the government's debt level and implicit debts, he warned.

     Such an expansion is a far cry from the funds necessary for boosting

infrastructure, Zhang Bin said, noting total infrastructure investment has

exceed CNY17 trillion. Special bond sales may not make up for shortages due to

the crackdown on local government financing vehicle and shadow banking that

aided the double-digit growth of infrastructure investment before, he added.

     Zhang Bin suggests the government should also increase general local

government bond sales. Unlike special bonds which are paid back from returns on

the projects they fund, "general bonds" are included in fiscal deficit numbers.

China now needs funding for other city projects beyond traditional and

profitable areas like highways and airports, he said.

     There may be two problems with such a change, Zhang Bin said. The possible

fiscal expansion could push the deficit-to-GDP ratio above the 3% ceiling from

the current 2.8%, and "local governments may be unwilling to use special bonds

on these low-profit projects," he said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$,M$$FI$,MGQ$$$]