Local Government Bond Issues Expected to Hit Record High in 2021

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Bond issues by China’s local governments are on track to breach a record high in 2021, amidst efforts by policymakers to buoy economic activity in the wake of COVID-19 as well as deal with regional debt.

Issues of new local government bonds are set to reach 4.62 trillion yuan (approx. USD$714 billion) by the end of 2021, according to figures from the National Debt Association of China (NDAC) and China Chengxin International Credit Rating.

The figure would mark a 1.5% increase compared to the 4.55 trillion yuan in local government bonds issued in 2020, during the height of the COVID-19 pandemic.

Funds raised by issues of local government debt will be primarily directed towards the development of “new infrastructure,” as well as new urbanisation and capital expansion projects, which will be fuelled by the issue of special government bonds.

China’s bond market is currently the world’s second largest according to IMF data, while local government bonds comprise around 30% of the market.

Sun Xiaoxia, chairwoman of the NDAC, said to state-owned media that increases in bond issues would help China’s local governments deal with their persistently high leverage levels.

“In the medium to long term, improving the efficiency of resource allocation, promoting high-quality and efficient economic development and fundamentally reducing the leverage ratio are the steps needed to solve the local government debt problem and achieve sustainable development,” said Sun.

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