Local Governments Will Issue Special Bonds for Shanty Town Upgrades

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Beijing has approved trials for the issuance of special bonds by China’s local governments to raise funds for the renovation and upgrade of shanty towns.

Xinhua reports that China’s Ministry of Finance and Ministry of Housing and Urban-Rural Development have just jointly issued the “Administrative Measures on the Trial Issuance of Local Government Shanty Town Upgrade Special Bonds” (试点发行地方政府棚户区改造专项债券管理办法), as part of efforts to improve housing quality in regional parts of the country and standardise related financing measures.

This year’s Government Work Report outlines the launch of a new three year “shanty upgrade attack plan”, with work set to commence on 5.8 million dwellings in 2018 alone.

Official data indicates that China invested 1.84 trillion yuan in shanty town upgrades last year, affecting 6.09 million dwellings.

The release of the Measures comes amidst a crackdown on local government debt by the Chinese central government as part of a broader deleveraging campaign, with state-owned enterprises now banned from providing any form of financing to local governments outside of bond purchases.

Beijing hopes that the release of the new Measures will standardise financing of shanty town upgrades, as well as help to contain the covert growth of local government debt.

Lian Ping (连平), chief economist with Bank of Communications, said to Xinhua that the new measures provide greater clarity as to funding sources, amounts, methods and yields for the financing of shanty town upgrades by local government.

According to Lian this will help local governments to improve debt management, clarify their debt conditions, and contain the growth of covert debt.

The Measures stipulate that local finance departments will place the proceeds raised via special bonds into government funds, which shanty town upgrade authorities at the same tier of government will then employ for projects.

Funds cannot be used for normal expenditures, while the shanty town upgrade projects that participate in trials must possess stable funding sources for the repayment of debts.

According to Lian Ping this will be of benefit to clarifying the source of funds for repayment by government, and providing forecasts that will provide for the more rational pricing of debt.

The Measures also stipulate that local governments and their departments at all levels are prohibited from using any form of debt-raising aside from the issuance of local government bonds.

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