context: Special bonds have been a problem throughout 2024. Beijing pressed local governments throughout the year to issue bonds more quickly and spend their funds starting in April, believing local government spending was key to buoying the economy. In November the National People's Congress announced a new debt deal meant to address hidden debt, with particular focus on using special bonds. New Opinions introduced by the State Council shows Beijing is serious about increasing government spending to boost demand, the top priority in 2024’s Central Economic Work Conference.
The State Council announced reforms to local government special bonds on 25 December. Major reforms include
- creating a negative list for prohibited project types
- other projects are allowed
- do not necessarily need to earn revenue
- expand the types of projects funds can be used on
- basic infrastructure
- industry parks
- elderly and child care facilities
- urban village renewal
- affordable housing
- pilot allowing ten provinces to issue bonds without receiving approval from the National Development Reform Commission and the Ministry of Finance
- cover 58 percent of special bonds issued in 2024
- increase sources for paying back bonds
- can use regular local government budgets
- calls for bonds to be issued more quickly
The reforms will alleviate the bottle-neck facing special bonds lately, explains Li Rong 李戎 Renmin University professor. The strict regulations previously put on special bond projects meant that once the best projects had been completed, local governments found it difficult to keep building, creating difficulties in issuing and spending new offerings. Funds are especially targeting public services and technology.
Special and regular local government bonds are beginning to merge, contends Liu Rong 刘蓉 Southwest University of Finance and Economics professor. Special bonds are set to become an important vehicle for local government fundraising.
Allowing funds to be used on a greater variety of projects will better leverage government investment in driving economic activity, notes Yuan Haixia 袁海霞 China Chengxin Credit Rating Group research institute dean.