China’s local governments have issued far fewer bonds in 2017 than previously forecast.
The latest data from Wind Information indicates that as of 25 December China’s local governments engaged in 1132 bond issues to raise a total of 4.3561 trillion yuan, for a marked decline compared to the 6.05 trillion yuan raised in 2016.
Analysts had previously forecast in February that the total value of local government bonds issued in 2017 would rise to between 6 – 7 trillion yuan.
Heavy scrutiny from regulators put the Chinese bond market under considerable pressure win 2017, however, with yield on 10-year sovereign debt rising to 3.8% – 3.8% at present from 3.1% – 3.2% at the start of the year.
10-year AAA bonds have seen their yields rise to 4.3% – 4.4% by mid-December, as compared to 3.4% – 3.5% at the start of the year, for an increase of approximately 90 percentage points.
These increases have pushed yields on local government bonds higher, limiting the volume of issuance.
While the yield on 5-year Hebei province bonds issued in 28 February was 3.3%, by 13 November yields on debt of the same maturity had risen to 3.9%.
Data from Wind Information further indicates that out of the 4.36 trillion yuan in local government bonds issued in 2017, 1.5847 trillion yuan involved the issuance of new debt, while 2.7714 involved the swapping of existing government debt into bonds, under a program first launched by Beijing 2014.
When added to the 8 trillion yuan in local government debt swapped for bonds in 2015 and 2016, the local debt replacement (地方债务置换) program has seen the conversion of a total of 10.8 trillion yuan in Chinese regional government debt.