China’s local governments are using much of the funds raised from new bond issues to repay outstanding debt on track to mature.
Data from China’s Ministry of Finance (MOF) indicates that in the first half of 2018 the country’s local governments rolled over 134.156 billion yuan in debt.
The release of the data marks the first time that the Chinese authorities have put a concrete number on the refinancing figures of local governments.
The copious refinancing amount is directly related to the sizeable volume of outstanding local government debt that is set to mature in 2018.
Approximately 838.9 billion yuan in local government debt will mature this year, as compared to 300 billion yuan over the past two years.
According to China Bond Rating the second half of 2018 could see local governments issue 500 – 600 billion yuan in bonds to repay outstanding debts.
Su Li (苏莉), chief analyst at Golden Credit Rating International, said to Yicai that Beijing’s current policy is to permit local governments to “borrow new to repay old” in order to “smooth out” the debt term structure and avoid maturity mismatch risk.
In 2014 China’s State Council issued the “Opinions Concerning Strengthening Local Government Debt Management” (关于加强地方政府性债务管理的意见), which stipulates that local governments may use an appropriate volume of newly borrowed funds to repay outstanding debt.
The financial condition of China’s local governments are unlikely to improve any time soon.
MOF data indicates that in the first half of 2018 the standard public budget revenues of local governments was 5.4441 trillion yuan, as compared to expenditures of 9.6221 trillion yuan., leaving them heavily dependent upon fiscal transfers from Beijing.