Chinese yuan Photo:VCG

North China's Inner Mongolia Autonomous Region and Tianjin Municipality have taken the lead to issue refinancing bonds this year to pay off debts, kicking off a new round of special-purpose bond issues to resolve local government debts. Analysts said the move will play an active role in stabilizing local economies.

Tianjin will issue a total of 30.6 billion yuan ($4.2 billion) of refinancing bonds on Tuesday, with maturities of five to 30 years, according to a document on chinabond.com. 

The proceeds will be used to pay off the debts owed by local-government financing vehicles (LGFVs) and other state-owned off-balance-sheet debt issuers to private businesses.

On Monday, Inner Mongolia made the same move by issuing 66.3 billion yuan worth of refinancing bonds to make overdue payments to private enterprises, according to a separate document on the website seen on October 6.

The developments mark the re-start of the issuance of special-purpose refinancing bonds this year to allow local governments to swap local debts with higher-quality guaranteed bonds, Cao Heping, an economist at Peking University, told the Global Times on Monday.

The move will play an important role in stimulating the confidence of the private economy and elevating the Chinese economy to a new level, he said, noting that private enterprises will be able to focus on their businesses after getting paid by  LGFVs.

According to the Securities Times, many research institutions predict that this round of bond issues will reach about 1-1.5 trillion yuan. Limited issuance quotas will favor fiscally weak regions.

The issuance of special-purpose refinancing bonds is the actual implementation of the spirit of the Political Bureau meeting of the CPC Central Committee on July 24, which stated that it is necessary to "formulate and implement a package of debt-clearing plans," Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Monday.

The move will alleviate the fiscal pressure of local governments and expand the role of local finance in boosting the development of local economies and ensuring the sound recovery of the Chinese economy, Xi said.

At the meeting held on August 18, Chinese financial authorities pledged more efforts to enrich policy tools and measures for preventing and defusing government debt risks, while intensifying the mechanisms for risk monitoring, assessment, prevention and control to prevent any systemic risks from forming.

Compared with the developed economies such as the US, China's local government debt level is still low and the overall risk is controllable, Cao said.

According to the Ministry of Finance, local government bond issues from January to July this year stood at 4.987 trillion yuan. As of the end of July, the total balance of China's local government bonds stood at 38.023 trillion yuan, within the limit approved by the National People's Congress, the country's top legislature, of 42.17 trillion yuan.

"While local governments make moves to swap old debts, they have to make repayments when they are due. In the long term, provinces should resolve local government debts from the perspective of development and making the cake bigger to expand fiscal revenue," Xi said.

Global Times