Beijing/Shanghai: China is planning to increase bond issuance quotas for local governments this year as authorities seek funding to shore up a slowing economy, according to people familiar with the matter.
Regional authorities could sell about 6 trillion yuan ($911 billion) of bonds, which will include new debt as well as securities sold to swap expensive local government debt with cheaper municipal notes, the people said. Last year, 3.2 trillion yuan was allocated for the swap program, while a 600 billion yuan ceiling was imposed for new issuance.
“This shows that regional authorities hope to seek financing that could be invested in infrastructure and other projects to bolster growth, which is positive for the economy in the long term,” said Li Bo, Shanghai-based chief investment consultant at GF Securities Co. “But still, local governments will have to repay the amounts eventually, which could still pose a risk to the economy.”
Details such as the allocations for the swap program haven’t been decided yet, according to the people, who asked not to be identified because the discussions are private. The Ministry of Finance didn’t immediately reply to a faxed request for comment.
Market Estimate
Local government bond sales may rise to as much as 5 trillion yuan this year, China International Capital Corp. analysts Liu Liu and Hong Liang wrote in a note this month. The size of the swap program may average 3.7 trillion yuan annually in 2016 and 2017, and new issuance will also likely increase, they wrote.
The plan comes at a time when China’s economy is forecast to grow 6.5 per cent in 2016, the slowest pace in more than a quarter century. The People’s Bank of China has cut interest rates six times since November 2014 and reduced the amount of cash that lenders need to set aside as reserves.
Premier Li Keqiang is seeking to revive expansion in the world’s second-largest economy with higher fiscal spending, while keeping a lid on local-government borrowing to avoid a debt crisis. Moody’s Investors Service said on Dec. 1 that the 2016 outlook for local governments is negative as the economy slows.
