Six provinces issue another 300 billion special refinancing bonds! This year, 3.8 trillion yuan has been issued, reaching a new high

Just recently, Liaoning, Chongqing, Yunnan and Guangxi provinces joined the ranks of special refinancing bond issuances. According to a number of domestic media reports, six provinces have issued or are to issue special refinancing bonds, with a scale of about 320 billion.

The purpose of issuing special refinancing bonds is also very simple, that is, to allow local governments to repay old debts by borrowing new debts to operate local operations, and at the same time, these funds can also be invested in people's livelihood and public projects to help the economy go to a higher level, and this year's local issuance quota has reached 3.8 trillion yuan, equivalent to about one and a half of Evergrande, and hit a new high.

Local debt risk has been frequently mentioned in recent years, mainly because of the sharp decline in local land transfer income, which is closely related to the real estate recession.

This has exacerbated the risk of local debt, and the anti-epidemic spending of the past three years has made some places miserable, so much so that they now have to rely on new debt to pay off old debt.

According to the 21st Century Business Herald, following Inner Mongolia and Tianjin, Liaoning, Chongqing, Yunnan, Guangxi and other places have also joined the issuance of special refinancing bonds.

According to the bond issuance data disclosed by Liaoning, Chongqing, Yunnan and Guangxi, the scale of refinancing bonds to be issued by the four provinces to repay existing debts is 87.042 billion yuan, 42.19 billion yuan, 53.3 billion yuan and 49.8 billion yuan respectively.

The market calls this type of bond a special refinancing bond, and the actual use is mainly to repay hidden debt, so far, the scale of this special refinancing bond issued by these six provinces is about 320 billion.

Although repaying old debts with new debts is not the fundamental solution to the problem, due to the epidemic prevention expenditure in the past three years and the economic downturn, coupled with the sharp decline in income from land sales, these factors have led to some places not being able to make ends meet and facing financial and even debt risks.

At this time, borrowing new debts to pay off old debts can undoubtedly make the local government breathe a sigh of relief and not let the debt default, which is a matter of principle, otherwise once the local debt defaults, it will bring a lot of economic problems, which is more closely related to the bank, because the local debt is mainly borrowed from the bank.

Therefore, the risk of local debt default is much higher than that of Evergrande, which is much higher here, not only the risk, but also the amount.

In the first half of this year, some local banks had small risks in stages, partly because they could not withstand local pressure, and assets were faintly at risk of being hollowed out, and if there was a run on depositors, it would immediately cause a wider range of problems, and the local government may owe hundreds of millions of yuan to banks, and behind these hundreds of millions of yuan, tens of millions of depositors will be involved.

Therefore, if Evergrande's debt default is concentrated in the upstream and downstream of the real estate industry, including home buyers, then once the local debt risk defaults, it can involve a very wide range of areas, and the randomness is also very large, and the negative effects caused by nature, even panic emotions, are very terrible.

According to reports and public data, another type of special refinancing bonds are used to reward regions with good debt control, and from October 2021 to the end of 2022, a total of 504.2 billion such bonds were issued in Beijing, Shanghai and Guangdong to replace hidden debts and help clear hidden debts in these three places.

Public information shows that last year's domestic local debt was 35 trillion yuan, and urban investment bonds were about 60 trillion yuan, and the three-year epidemic led to a sudden surge in local debt, of which a lot of epidemic prevention expenses were spent.

Yao Yang, president of the Peking University Development Institute, said in an interview: "When the economy is not good, we still have to rely on local debt, and in those years, local debt has risen, and now in five years, we can't stand it, and the cycle of our debt is getting shorter and shorter, from 20 to 14 years to 5 years." In the first half of this year, the local government basically could not raise funds from the market, and I heard that some places used fiscal funds to repay debts. ”

The so-called local debt, in essence, we can understand as leverage, the more fierce the leverage, may be the more local debt growth, in this period, due to the large use of leverage, leveraged projects are more, from infrastructure to public construction, parks, urban renovation, etc., these can promote employment and GDP growth to a certain extent, resulting in better overall economic performance.

However, leverage also has economic benefits, as leverage is used more and more frequently, the return on investment will also show the principle of diminishing marginal benefits, may use ten billion leverage in the past can pull 15 billion GDP, but now may 10 billion leverage can only pull 8 billion GDP.

As a result, the debt cycle in Yao Yang's mouth is getting shorter and shorter.

Local debt remains high, and in the past, it was possible to rely on land transfer funds to increase local income, but with the decline of the real estate market, local land transfer funds have also been greatly reduced, so debt pressure and risks have begun to become prominent, and now, more and more intensive borrowing of new debts to pay off old debts can essentially say the urgency of this problem.

The new special bonds were first issued in 2015, when the issuance scale was only 100 billion yuan, and then began to increase year by year, exceeding 1 trillion yuan in 2018, reaching 3.65 trillion yuan in 2022, and reaching a record high of 3.8 trillion yuan in 2023.

The issuance of various debts may not seem easy to understand, but they are essentially a kind of leverage, but the title has changed, but the purpose of issuing bonds and the way of use may not change much.

Many people say that according to this logic, then in theory, unlimited bond issuance can be achieved, thus achieving a situation where there is no end to leverage.

But in reality, this is, of course, impossible.

Because debt or leverage, in essence, this money will eventually flow into the market, which will be reflected in commodity prices, which is what we commonly call inflation.

This is also another big question, with today's CPI and PPI data, we have no inflation, and there are even signs of slight deflation, but does that mean we don't have much money?

Of course not, it just means that there is not much money circulating in the market.

From the perspective of the scale of debt issuance, whether it is special bonds or other debts in recent years, in fact, the issuance amount is getting higher and higher, which is actually borrowed by the bank nominally, and where does the bank's money come from?

You take out a loan from a bank, and the money, of course, is the depositor's money.

So, in essence, the more debt and the greater the leverage, it will definitely be reflected in the inflation data.

But today's inflation is not, not to indicate that the total amount of money is small, just the surface of the circulation of money slowed down, the main reason may be reflected in consumption, for a long time after the epidemic, consumption recovery slowly, indirectly led to prices did not rise, stagnated.

But this does not mean safety, taking real estate as an example, if we regard the house people buy as a bank deposit certificate, when more and more people choose to sell houses, then the real estate industry is bound to present a situation of more sellers and fewer buyers, in such a concentrated run, the real estate industry is bound to have a considerable crisis.

And real estate, to a certain extent, is the "anchor" of currency printing, a large amount of money is "anchored" in the real estate industry, is "anchored" in the bank, once there is a run, then inflation may hit like a tsunami.

So, from this logic, leverage is not infinite, and bond issuance is not unlimited, otherwise inflation soars, and more people's incomes do not grow or grow slowly, then consumption will feel more painful.

Now, due to the lack of more data, such as the expenditure storage situation of various places, it is difficult to make a full estimate of the local debt risk, but obviously, such data must exist, and only people in the industry may know how big the problem is.

From the data that has been made public, local debt is an impossible problem to solve in the short term, and local public debt plus implicit urban investment bonds are enough to save Evergrande dozens of times.

Since the two are not of the same magnitude, the priority of local debt is naturally much higher than that of Evergrande.

For localities at the moment, tightening their belts is certainly a smart move, but the more important question is how to shift from infrastructure-oriented to consumption-oriented to support economic growth.

This determines the fundamentals of future economic growth.

At present, local debt is difficult to solve in the short term, and the bond issuance cycle is getting shorter and shorter, so local spending may be subject to some constraints in the future.

At today's income level, considering people's social security and other issues, consumption is still a difficult priority, although it is important, but at present, it is still a problem that is difficult to solve in the short term.

The risk of local debt is not completely unsolvable, and it takes a relatively long period of time to see results, but the habits in it, such as quotations, bidding, a street lamp price, etc., such as price transparency and market problems, if not cured, then it is no less difficult to make local "food and clothing" than to let Xu Jiayin stop as soon as possible.

The more important problem is that economic growth is the inevitable direction, so this seems to be an unbalanced problem between promoting growth and stabilizing spending.

Fish and bear's paw can't have both, and it's good to have the best of both worlds, but if you have to give up one or the other, how do you choose?

end.

Author: Luo Sir, the workplace reference of the new youth. Concerned about the logic behind the development of things, optimistic pessimists. Follow me and grind up the knowledge to show you.