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the “high tide” of local government borrowing has just passed.

in order to stabilize investment and the economy, local governments have recently accelerated the issuance of bonds to invest in major projects. according to public data, local government bonds issued nationwide in september amounted to approximately 1.3 trillion yuan, and net financing amounted to approximately 1.1 trillion yuan, both hitting new single-month highs this year. in the first three quarters of this year, local government bonds were issued nationwide at approximately 6.7 trillion yuan, including approximately 4.2 trillion yuan in new bonds and approximately 2.5 trillion yuan in refinancing bonds.

since the limit for new local government bonds this year is 4.62 trillion yuan, and about 4.2 trillion yuan has been actually issued so far, new bond issuance is nearing completion, with only 0.4 trillion yuan left to be issued, and the progress of new bond issuance has already caught up. last year.

the recent state council executive meeting proposed to study and deploy the implementation of a package of incremental policies. with the successive introduction and implementation of financial incremental policies such as reserve requirement ratio and interest rate cuts, future incremental fiscal policies have received widespread attention from the market. at present, many experts suggest considering the issuance of additional government bonds, special government bonds, and revitalization of special debt limits to appropriately expand fiscal expenditures to stabilize the economy.

wen bin, chief economist at minsheng bank, analyzed that the local government bond issuance structure in the fourth quarter may be dominated by special refinancing bonds.

from the perspective of stabilizing growth, it is more likely to increase the deficit and issue more government bonds. from the perspective of risk prevention, the issuance of special refinancing bonds can effectively alleviate local government debt pressure, and the new approved quota may be around 1 trillion yuan.

where did the 6.7 trillion yuan go?

currently, the main legal channel for local borrowing is to issue local government bonds. local government bonds are divided into new bonds and refinancing bonds according to their uses. new bonds are newly issued bonds, and the funds are mainly used for the construction of major projects such as infrastructure and people's livelihood projects. refinancing bonds are mainly used to repay the principal of maturing debt, which is "borrowing new and paying back old".

in the first three quarters of this year, local governments borrowed 6.7 trillion yuan. although this was lower than the same period last year (about 7 trillion yuan), the scale of new bond issuance was 4.2 trillion yuan, which was slightly higher than the same period last year (about 4.1 trillion yuan). the progress of new bond issuance (that is, the proportion of new bond issuance in the quota) has reached about 90%, which means that if there is no incremental policy in the later period, this year's new bond issuance is coming to an end.

among the 4.2 trillion yuan of new bonds in the first three quarters of this year, about 3.6 trillion yuan of new special bonds were added, which was the main force in the new bonds. where exactly is this money going?

according to data from the enterprise early warning channel, about 33% of the special bond funds in the first three quarters of this year were invested in municipal and industrial park infrastructure, about 21% were invested in transportation infrastructure such as railways, rail transit, and government toll roads, and about 9% were invested in shantytown renovation. , about 7% is invested in medical and health care, and about 6% is invested in agriculture, forestry, water conservancy, etc.

according to data compiled by the minsheng bank research institute, 68.3% of the newly added special bond funds were invested in infrastructure construction in the first three quarters, and 9.8% were used as project capital. these two proportions are higher than those in the previous period. there was a slight decline in all eight months.

in addition, among the new special bond issuances this year, there have been special bond projects that did not disclose specific implementation plans, financial evaluation reports, and legal opinions. this is also called special special bond by the market, and part of the funds is considered to be used for existing projects and existing projects. debt repayment. according to a report from the zhongtai securities research institute, as of the end of september, approximately 923.3 billion yuan of special bonds had been issued.

in addition to new bonds, approximately 250 million yuan in refinancing bonds were issued in the first three quarters of this year. this fund was mainly used to repay maturing government debt, which is a form of "borrowing new and paying back old".

in recent years, fiscal revenue growth has slowed down, and local debt repayment pressure has increased. local governments have become increasingly dependent on "borrowing new and paying back old".

for example, data from the ministry of finance show that in the first eight months of this year, about 2.5 trillion yuan in principal repayments were due on local government bonds, of which about 85% were raised through the issuance of refinancing bonds, and the remaining 0.4 trillion yuan was raised through the issuance of refinancing bonds. arrange financial funds and other repayments.

fiscal incremental policy attracts attention

with intensive local bond issuance, local bond issuance is nearing completion.

wen bin said that as of the end of september, only 404.1 billion yuan of new local debt quotas were left for the year, of which 300.7 billion yuan of new special debt quotas remained and 103.5 billion yuan of new general debt quotas remained. it is expected that the basic issuance will be completed by the end of october. it will be used up before the end of the year. judging from the issuance plans announced by various places, the scale of new local bond issuance in october was 188.6 billion yuan. adding in the planned repayment scale of 106.7 billion yuan, the scale of local government bond issuance in october may be around 300 billion yuan.

however, in the context of increasing downward pressure on the economy, whether new fiscal incremental policies will be introduced in the future has been hotly debated and expected by the market.

on september 26, the political bureau of the cpc central committee held a meeting and proposed to “increase the counter-cyclical adjustment of fiscal and monetary policies” and “increase the launch of incremental policies” when deploying the next step of economic work.

on september 29, the state council executive meeting discussed and deployed the implementation of a package of incremental policies. the meeting proposed that each policy should have a clear division of responsibilities and speed up the pace of introduction and implementation. policies that are relatively mature should be launched immediately, and policies that need further refinement and improvement should be done as soon as possible and rolled out in batches when they are mature. new incremental policies should be studied in a timely manner according to changes in the situation.

with the recent implementation of new policies such as rrr cuts, interest rate cuts, and existing mortgage interest rates, many experts are currently looking forward to the introduction of relevant incremental policies on the fiscal front.

luo zhiheng, chief economist of guangdong securities, believes that during the economic downturn, fiscal policy can have a greater effect than monetary and financial policy, and it is necessary to prepare for the fourth quarter and fiscal policy in 2025.

luo zhiheng estimates that the gap between broad fiscal revenue and the budget target revenue this year is close to 2.8 trillion yuan. therefore, we can consider increasing the size of the budget deficit during the year and issuing additional government bonds to ensure necessary expenditures and hedge against the contraction in expenditures caused by the decline in land transfer revenue and tax revenue.

he believes that additional issuance of national debt can be used to provide subsidies to specific groups such as unemployed college students and rural elderly groups; support localized debt; explore the establishment of a "real estate stabilization fund" at the central level, which will be used specifically for guaranteeing housing delivery, purchasing and storage, etc., to promote the "stopping of real estate" fall back to stability."

currently, many economists recommend issuing more national debt or special national debt, but they have different views on the scale of borrowing and the direction of fund use.

judging from fiscal incremental policies in the past two years, the sixth meeting of the standing committee of the 14th national people's congress reviewed and approved the central budget adjustment plan on october 24, 2023, and issued an additional 1 trillion yuan of government bonds to support post-disaster recovery and reconstruction and improve prevention and control. disaster reduction and relief capabilities. in addition, from october last year to the end of last year, local governments issued nearly 1.4 trillion yuan in special refinancing bonds to ease the pressure on local debt maturities.

in august 2022, the state council approved local governments to use more than 500 billion yuan in special debt balance limits. in addition, the central bank also increased the credit line of policy and development banks by 800 billion yuan in 2022, and guided the establishment of two batches of policy development finance totaling 739.9 billion yuan. tools to support infrastructure construction and leverage effective investment.

many experts told china business news that the national people's congress standing committee meeting in october this year will be an important time window for observing fiscal incremental policies.