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local governments have accelerated the pace of borrowing and invested the funds in major infrastructure projects to expand effective government investment and stabilize growth.

at present, the legal channel for local governments to borrow money is basically through issuing local government bonds. according to public data, in the first eight months of this year, the country issued about 5.4 trillion yuan of local government bonds, a year-on-year decrease of about 14%.

overall, the pace of local borrowing this year is still slower than the same period last year, but bond issuance accelerated significantly in august.

due to the accelerated issuance of new bonds in august, the national issuance of local government bonds exceeded 1 trillion yuan (about 1.2 trillion yuan) in august, an increase of nearly 0.5 trillion yuan from july, and the net financing scale increased by about 0.6 trillion yuan from july.

the acceleration of bond issuance in august is in line with market expectations. the central government has repeatedly called for accelerating the issuance and use of special bonds. in the "report on the implementation of china's fiscal policy in the first half of 2024" (hereinafter referred to as the "report") recently released by the ministry of finance, it is required to accelerate the issuance and use of local government special bonds in the next step to form more physical workload.

china minsheng bankchief economist wen bin believes that the issuance of local government bonds was slow in the first half of the year. in order not to affect the use of bond funds within the year, various departments and regions have accelerated the deployment of local government bond issuance since june. the issuance of local government bonds accelerated significantly in august, which will support faster growth in infrastructure investment.

although the scale of local borrowing this year is lower than last year, where the huge amount of funds exceeding 5 trillion yuan is spent is still a concern for the outside world.

local government bonds are divided into new bonds and refinancing bonds according to their purpose. new bonds are newly issued bonds, and the funds are mainly used for the construction of major projects such as infrastructure and livelihood projects. refinancing bonds are mainly used to repay the principal of matured debts, which is a kind of "borrowing new to repay old".

public data shows that of the 5.4 trillion yuan of government bonds issued by local governments in the first eight months of this year, refinancing bonds accounted for about 2.3 trillion yuan, down about 12% year-on-year, and new bonds accounted for about 3.1 trillion yuan, down about 16% year-on-year.

it is not difficult to find that more than 40% of the 5.4 trillion yuan borrowed by local governments was used to repay old debts, thereby alleviating the contradiction between local fiscal revenue and expenditure, reducing financing costs, and balancing the scale of existing government bonds due. the remaining funds were mainly used for the construction of major projects.

data from the ministry of finance shows that in the first seven months of this year, local governments repaid a total of about 2.9 trillion yuan in principal and interest, of which the principal was mainly repaid through refinancing bond financing.

of the 3.1 trillion yuan in new bonds issued in the first eight months of this year, about 2.6 trillion yuan were new special bonds and about 500 billion yuan were new general bonds.

general bond funds are mainly used for public welfare projects with no income, while special bond funds are used for public welfare projects with certain income, and the income can cover the principal and interest. at present, the new bonds are mainly concentrated in the new special bonds. where did the approximately 2.6 trillion yuan of new special bond funds in the first eight months of this year go?

according to the enterprise early warning data, in the first eight months of this year, about 33% of the new special bond funds were invested in municipal and industrial park infrastructure, about 20% were invested in transportation facilities such as railways, rail transit, and toll roads, about 8% were invested in shantytown transformation, about 7% were invested in medical and health care, and about 6% were invested in agriculture, forestry, water conservancy, etc.

what is the effect of the issuance of local government bonds, especially special bonds?

not long ago, a relevant official from the ministry of finance publicly stated that in the first seven months of this year, various regions issued 1.7749 trillion yuan in new local government special bonds, which were mainly used for municipal construction and industrial park infrastructure, social undertakings, transportation infrastructure, affordable housing projects and other key areas identified by the party central committee and the state council. special bond funds have played a positive role in strengthening the foundation, filling in the gaps, benefiting people's livelihood, and expanding investment, providing strong support for high-quality economic and social development.

funds such as special bonds, additional treasury bonds, and ultra-long-term special treasury bonds have driven infrastructure investment to maintain growth.

according to the data from the national bureau of statistics, from january to july, infrastructure investment increased by 4.9% year-on-year, 1.3 percentage points higher than the total investment, driving the total investment growth by 1.0 percentage point. among them, investment in water conservancy management and railway transportation maintained double-digit high growth.

however, some local audit reports recently revealed some old problems in the use and management of local government special bonds, such as some special bond projects exaggerating their returns when applying, some projects progressing slowly, funds being idle, funds being misappropriated, and some projects generating less than expected returns or even no returns.

caida securitiesdeputy general manager hu hengsong told caixin that some special bond projects fabricated revenues during the preparation stage, and the project preparatory documents were incomplete. some projects were not clearly targeted, and due to poor preparatory work, bond funds could not be disbursed in a timely manner, or the funds were idle, and some special bonds were misappropriated, which would result in the final project revenue being lower than expected.

he suggested improving the supervision system of special bond project revenue, establishing a special account for project revenue, depositing the revenue generated by the project into the special account, and implementing a special review mechanism for special revenue to solve the problems of project revenue inflation and project revenue falling short of expectations.

in addition, hu hengsong suggested that a special account could be established for the special bond funds, and the special funds could only be used for the special bond projects reported, so that the funds "follow the projects". for projects that do not meet the conditions for commencement, if the funds have been issued, they should be reported as soon as possible, and after reporting, they should be adjusted to other qualified projects in a coordinated manner to solve the problems of idle funds and misappropriation of funds.

a relevant official from the ministry of finance said that in the next step, the ministry of finance will work with relevant departments to guide and urge localities to further accelerate the issuance and use of special bonds, improve the efficiency of the use of special bond funds, drive the expansion of effective investment, and promote the formation of physical workload as soon as possible.

data from the ministry of finance shows that as of the end of july 2024, the balance of local government debt nationwide is about 42.8 trillion yuan, of which general debt is 16.2 trillion yuan and special debt is 26.6 trillion yuan.

a relevant person in charge of the ministry of finance recently stated that after concerted efforts from all parties, the debt risk of local governments has been alleviated overall, and the scale of hidden debt has gradually decreased. in general, the debt risk of local governments in my country is generally controllable.