China is accelerating the issuance of local government special bonds in August to ensure that the full year quota is satisfied ahead of schedule.
Data released by the Ministry of Finance (MOF) in its “2020 First Half China Fiscal Policy Execution Report” (2020年上半年中国财政政策执行情况报告) indicates that as of 31 July local governments had issued 3.7586 trillion yuan in bonds, including 1.2902 trillion yuan in standard bonds and 2.4684 trillion yuan in special bonds.
The local government special bond issuance amount for the first seven months of 2020 marks a record high for the January-July period in China following an acceleration of issuance by Beijing in the wake of the COVID-19 pandemic.
2.2661 trillion yuan in new local government special bonds have been issued, accounting for 60.4% of the full year quota of 3.75 trillion yuan, while the full year quota of 1 trillion yuan in anti-COVID-19 special treasury bonds has already been fully issued.
The 2020 local government special bond quota of 3.75 trillion yuan marks an increase of 1.6 trillion yuan compared to 2019, as Chinese regulators step up stimulus measures to keep the economy afloat in the wake of COVID-19.
MOF said in its report that it would seek to stabilise the pace of new special bond, anti-COVID-19 treasury bond and standard bond funding, and endeavour to complete issuance prior to the end of October.
Given a local government bond special quota of 3.75 trillion yuan as compared to issuance of 2.2661 trillion yuan in the first seven months of the year, analysts speculate that this will likely mean issuance of well over 1 trillion yuan in the month of August alone.
Tang Linmin (汤林闽), a researcher with China International Futures, said to state-owned media that local government bond issuance slowed down considerably in June and July, to 286.7 billion yuan and 272.2 billion yuan respectively, as compared to 1.3025 trillion yuan in May.
According to Tang the reason for the slowdown was to make room for the issuance of anti-COVID-19 treasury bonds, but since the quota has now been completed the issuance of local government bonds is likely to sharply pick up pace.