Fresh data provides a clearer picture of the new bond quotas received by local governments, in the wake of a crackdown by China’s financial regulators that have made bonds their chief means of financing.
In order to drive deleveraging and contain “covert growth” in regional debt, Beijing has endeavoured to make to make bond issuance the primary means of financing on the part of China’s local governments.
The 2018 National People’s Congress also set a new debt quota of 2.18 trillion yuan for local governments this year, leading to speculation about how this would be distributed amongst 31 province-level entities.
Because this debt quota will determine the local government financing amount, a slew of delegates to the National People’s Congress, including the representatives for Guizhou and Hebei province, publicly requested that the Ministry of Finance raise their quotas for 2018.
MOF previously issued the “New Local Government Debt Quota Allocation Temporary Administrative Measures” (新增地方政府债务限额分配管理暂行办法) in 2017, which indicated that allocations would be primarily based upon factors including regional debt risk, financial status, key project expenditures as confirmed by Beijing, and local government demand for financing.
The allocation of new debt quotas would follow the principle of “positive incentives,” with more quotas allocated to regions with strong finances, greater room for debt-raising, low debt risk and a better track-record of debt management.
A number of Chinese provinces have just recently revealed their new bond quotas following their issuance from on high by MOF.
According to Yicai Jiangsu province on the eastern coast has the largest new debt quota, at 166.5 billion yuan.
A slew of other provinces also enjoy debt quotas in excess of 100 billion yuan, including Guangdong, Hebei, Zhejiang and Jiangsu.
Hebei province has seen a succession of major increases in its debt quotas over the past two years, in line with the principle of “positive incentives” outlined by MOF.
In 2017 the State Council approved a new debt quota of 77.6 billion yuan for the province, for a year-on-year increase of 44%, following MOF’s assessment of Hebei’s debt risk, financial status, as well as the heightened need for funds in relation to the Winter Olympics.
In 2018 MOF has provided Hebei with a debt quota of 131.9 billion yuan, for a near 70% increase compared to 2017, as well as a separate new debt quota of 30 billion yuan for the Xiong’an New District.
Not all of the new debt quota will be used by the province-level governments, with much of it slated for transfer to municipal and county authorities.
Out of the 131.9 billion yuan quota allocated to Hebei, the province-level government will retain 12 billion yuan, with the remaining 90% to be allocated to lower-level authorities.
This will include a 30 billion yuan allocation to the Xiong’an New District, which will consequently enjoy a total new debt quota of 60 billion yuan.
At the other end of the scale in terms of debt quotas are the mega-city of Shanghai and Yunnan province, which have received just 59.2 billion yuan and 68.2 billion yuan for 2018 respectively.