Local Government Bond Issuance Set to Accelerate in Second Half of 2017

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The volume of debt issuance by local governments is expected by domestic analysts to rise dramatically in the second half of 2017 following the issuance of under a third of allocated capacity during the first half.

Data from China Cheng Xin International Credit indicates that local governments had a total of 1.8609 trillion yuan in bonds outstanding across first half of the year, with the issuance of 454.53 billion yuan in new debt during the period.

While rates saw a decline in June decline, China Cheng Xin analysts notes that issuance costs for local government remain at record highs.

Speaking to Cet.com, Tang Linmin, a researcher from  the China Academy of Social Sciences, said that the pace and scale of local government bond issuance during the first half of 2017 saw a marked year-on-year decline as a result of tightened monetary policy and ensuing high yields, as well as stricter regulation and scrutiny of government debt.

China Cheng Xin analyst Yang Xiaojing notes, however, that the 2017 government work report has made arrangements for a total of 1.63 trillion yuan in new local government bond issuance for the current year, for an increase of 460 billion yuan compared to total new issuance of 1.1684 trillion yuan last year.

The 454.53 billion yuan in new debt issued by local governments during the first half of 2017 comprises only 27.89% of total issuance allocated to the full year, leaving ample capacity for the second half.

For this reason Tang Linmin expects the pace and volume of local government bond issuance rise markedly in the second half of the year, especially given that government debt is approaching the end of a three year rollover cycle.

“Roll over will be extremely important in 2017, and the scope of roll over debt issuance should not be less than 3 trillion yuan,” said Tang. “From the data we can see that only around 1.2 trillion yuan was issued in the first half, so in the second half the ace and scope of roll over debt issuance should exceed the second half.”

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