Beijing Cancels Ceiling on Purchase of Local Government Bonds by Underwriting Banks

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China’s banking and insurance regulator has cancelled the ceiling on the purchase of local government bonds by underwriting banks as part of efforts to step up issuance prior to the end of 2018.

The China Banking and Insurance Regulatory Commission (CBIRC) recently issued the “Notice Concerning Matters in Relation to Commercial Bank Underwriting of Local Government Bonds” (关于商业银行承销地方政府债券有关事项的通知).

The Notice cancels the requirement first launched in 2012 that commercial banks purchase no more than 20% of the bond issues for which they’ve served as lead underwriter.

Regulators hope that the move will whet the appetite of Chinese banks for underwriting and buying up local government debt.

Local governments around China have accelerated debt issuance following a push from Beijing for the expanded deployment of special bonds.

The total volume of local government bonds issued in 2018 as of 4 September was 3.052037 trillion yuan (approx. USD$446.52 billion) according to data from East Money Information (东方财富).

Zhou Guannan (周冠南), analyst with Huachuang Securities, forecasts that local government bond issuance will be between 1.65 trillion yuan and 1.9 trillion yuan for the period from August to December.

The month of August saw the issuance of 882.97 billion yuan in local government bonds, with 485.5 billion yuan being “new bonds,” and 396.5 billion yuan for debt roll-overs or refinancing.

With regard to new bonds, normal bonds accounted for 105.1 billion yuan, and special bonds 381.4 billion yuan.

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