MNI INTERVIEW: Hainan Bonds To Fund World's Largest Freeport
China's Hainan province will issue local government bonds to fund the construction of the world's biggest free-trade port, its fiscal head tells MNI.
China plans to invest hundreds of billions of yuan in building up the world’s largest free-trade port in Southeast Hainan by 2025 and aims to pay for much of it with local government bond sales at home and abroad, a high-ranking provincial official told MNI, adding that authorities will closely monitor the use of the funds as risk management is now being prioritised over stimulating GDP growth.
Hainan province will focus on 295 key projects in four major industries including service, tourism, high-tech and agriculture, and in fields such as environment protection and infrastructure, with total investment of CNY120 billion to CNY130 billion in 2024, said Cai Qiang, head of Hainan province’s fiscal department, in an interview, noting local government special bonds (LGSB) will play a major role to raise funds for the investment.
Hainan will actively seek an increase in the central government's allocation of LGSP quota for the province this year, to better support these key projects, said Cai, who served at China’s Ministry of Finance for over 20 years and is a delegate to the 14th National People’s Congress, which ended on Monday. (See MNI INTERVIEW: China To Extend Debt, Reform Local Gov Tax)
DEBT INCREASE
LGSBs are an off-balance-sheet instrument, as they are repaid by revenues from the projects they fund. Issuance of LGSBs will total CNY39 trillion in 2024, the most since they were introduced in 2016, Premier Li Qiang said in his government work report at the Two Sessions, stressing that quotas will only be allocated to regions with solid plans for profitable projects in line with national strategic objectives.(See MNI: China Seen Sustaining Fiscal Stimulus As Total Deficit Up)
Cai said Hainan authorities will closely monitor the use of LGSB funds to ensure they are repaid by project revenue. Hainan will also look at extending the duration of its LGSB issuance from the current eight-year average, Cai said, adding this will better match longer-term project requirements.
Risk management is now a priority for local fiscal authorities, said Cai, pointing to how the 2024 work report highlighted fiscal discipline and restricted unbudgeted spending. Hainan’s fiscal chief said the province will ensure its total debt does not exceed the 300% of total revenue set by the Ministry of Finance as a “red debt level” in 2019.
OFFSHORE BONDS
Hainan will continue to issue bonds in Hong Kong this year, setting a benchmark for the province’s companies which raise money in the territory and further promote the free-trade port, he said.
The province sold CNY5 billion in bonds in Hong Kong in 2023, including CNY3 billion for sustainable development, CNY1 billion of green bonds and CNY1 billion of blue bonds, which focus on marine or offshore renewable energy, with yields of 2.45%, 2.35% and 2.7% respectively.