China’s Ministry of Finance is launching measures to raise the role of the market in the pricing of local government bonds.
On 8 May MOF announced via its official website the release of the “Opinions Concerning the Effective Performance of Local Government Bond Issuance Work in 2018” (关于做好2018年地方政府债券发行工作的意见), which seeks to strengthen management of plans for the issuance of local government bonds, as well as increase the role of market-based pricing.
According to the Opinions the issuance volume of local government bonds for each quarter should in principle be kept at 30% or less of all publicly offered bonds for the year in that particular region (calculated based on quarterly additions).
Where the annual bond issuance volume is 50 billion yuan or less or the government debt-for-bond swap issuance volume is 40% or more, then the above percentage may be increased to 40%.
Where the less than 10 billion yuan in bonds are issued within a year, then one-time issuance may be made which is not subject to the above restrictions.
The Opinions also stipulate that local government finance departments may adopt flexible tendering methods for the issuance of local government bonds on the basis of market conditions and their own needs.
It also encourages local governments to expand their adoption of targeted underwriting for the issuance of debt swaps.
Local government debt is one of the focal areas for the Chinese central government’s ongoing deleveraging campaign, with Beijing launching a debt-for-bonds program back in August 2015 to help reduce regional debt levels.
Beijing indicated at the start of the year that it would put heavy pressure on covert growth in local government debt, setting a ceiling of 21 trillion yuan for 2018.