MNI POLICY: China Promotes Local Govt Bonds to Spur Growth

     BEIJING (MNI) - China will continue to accelerate the issuances of local

government bonds (LGB) and implement tax-cut policies to boost growth in the

second half, the Ministry of Finance said in a briefing on Tuesday. Here are the

main points:

     - The finance ministry will further push local governments to make good use

of funds from selling bonds to support investment in important sectors and

encourage the participation of private investment. 

     - Local governments issued CNY2.18 trillion bonds in H1, meeting 70.7% of

the quota for the whole year. Issuances reached CNY717 billion in June, the

largest for a single month in H1. 

     - The issuance of LGB in H1 surged by 55.2 percentage points y/y compared

with 15.5% increase in 1H 2018.

     - The LGB sold averaged a rate of 3.53% in June, higher than 3.44% for the

whole H1, but lower than the 4% in 2018. The average term of maturity of LGB in

June was 10.4 years, compared with 8.76 years in H1. 

     - Over 60% newly issued LGB was invested in infrastructure and 50% in

projects already underway, which the ministry said will help expand effective

investment and attract private investment. 

     - The authorities will continue to optimize current measures to deal with

new issuances and ensure the tax cuts benefit all sectors. State-owned financial

institutions and companies have been required to remit more profits to offset

the slowing fiscal revenue due to tax and fee cuts. 

     - Fiscal revenue rose by 3.4% y/y in H1 to CNY10.78 trillion compared with

a 10.6% growth in the same period last year, slowed by tax revenue, which grew

only 0.9% relative to 14.4% last year. 

     - Non-tax incomes, mainly from state assets, jumped by 21.4% y/y, compared

with a reduction of 10.8% recorded last year. 

     - The central government will increase support to local authorities with

fiscal difficulties caused by tax and fee cuts. Fiscal transfer payment made

reached 92% of its total budged target for the year. 

     - Local governments have tightened general spending to help balance budget.

National fiscal spending increased 10.7% y/y to CNY12.35 trillion, compared with

a 7.8% growth in H1 last year. Combined local fiscal spending grew 10.8% y/y, up

3 pp than the same period last year.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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