Local Government Bond Issuance Expected to Hit 5T Yuan in 2019

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Domestic analysts see local government bond issuance in China rising to as high as 5 trillion yuan in 2019 as investment in infrastructure and other areas accelerates.

Figures released by the Ministry of Finance on 19 December indicate that China saw the issuance of over 4.1 trillion yuan in local government bonds for the first 11 months of 2018, as well as an acceleration of special bond issuance in the third quarter.

Standard bonds accounted for 2.1913 trillion yuan of the 4.1014 trillion yuan in local government bonds issued during the January-November period, while special bonds accounted for 1.9101 trillion yuan.

New bonds accounted for 2.1232 trillion yuan in issuance, while roll-over and re-financing bonds comprised 1.9782 trillion yuan.

Out of new bonds issued new standard bonds were 802.5 billion yuan, accounting for 97% of the new standard bond quota of 830 billion yuan for the current year, while new special bonds were 1.3207 trillion yuan, accounting for 98% of the new special bond quota of 1.35 trillion yuan.

As of the end of November China’s local government debt balance was 18.2903 trillion yuan, within the bounds approved by the National People’s Congress earlier this year.

The local government special bond issuance quota of 1.35 trillion yuan for 2018 marked an increase of 550 billion yuan compared to last year, while in July China’s State Council issued a call for accelerated issuance and usage of special bonds, which has borne fruit in terms of infrastructure projects.

“In 2018, China’s local government bond issuance was characterised by low levels at the beginning and higher levels subsequently,” said Tang Linmin (汤林闽), a researcher with China International Futures Co., Ltd. to state media.

“From January to May local government bond issuance was markedly low, and began to accelerate in June, before seeing explosive growth in issuance volumes in July  – September.”

Domestic analysts expect local government bond issuance to expand further in 2019 as part of efforts to keep economic growth within a “reasonable range,” while spurring consumption and supporting the growth of the private economy.

China Chengxin Credit Rating Group forecasts 2019 local government bond issuance of approximately 4.8 – 5 trillion yuan, with new bonds of 3.2 – 3.5 trillion yuan and new special bond quota of approximately 2.2 – 2.4 trillion yuan.

China Securities International forecasts new special bond issuance of around 1.5 to 2 trillion yuan in 2019, and a local government bond supply of 3.9 – 4.4 trillion yuan.

Sinolink Securities forecasts 2019 local government bond issuance of 4.57 trillion yuan, with the new bond quota reaching 3 trillion yuan and the new special bond quota reaching 2 trillion yuan.

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