Accelerated "special debt": 18 provinces will issue 840.4 billion yuan in 17 days, and the three regions will exceed 100 billion

In order to prevent local government debt risks, local governments have accelerated the issuance of special refinancing bonds since October.

According to the statistics of China Bond Information Network, the first financial reporter found that as of October 18, a total of 18 provinces disclosed the issuance of special bonds (hereinafter referred to as "special bonds") to repay existing debts, and it is expected that the issuance scale will reach 840.414 billion yuan by October 25.

The special feature of special debt is that it is not used to repay the principal of mature government bonds like ordinary refinancing bonds, but is used to repay existing debts, including repayment of government arrears to enterprises. This is also widely understood by the market as a way to replace the hidden debts for which the government is responsible for repayment, to extend the debt period, reduce interest, and mitigate risks, which is an important means for the current central government to resolve local government debt risks.

On October 9, Inner Mongolia became the first province in the country to successfully issue special bonds this year, officially kicking off this year's local special bond issuance. According to the special bond issuance plan disclosed by the local government, the total issuance scale of local special bonds will be about 840.4 billion yuan in the 17 days to the 25th.

Luo Zhiheng, chief economist of Guangdong Development Securities, believes that the two rounds of special bond issuance in the past three years are about 627.8 billion yuan and 504.2 billion yuan respectively, and the issuance lasted about 10 months and 9 months respectively. Compared with the previous two rounds, a new round of special bond issuance was launched in October this year on a larger scale and at a faster pace.

"The resumption of the issuance of special refinancing bonds can be used to replace hidden debts, and will be used to resolve hidden debts together with other means such as debt rollover. The special refinancing bonds mainly use the general debt balance limit, and it is expected that the issuance scale of special refinancing bonds in the fourth quarter will be about 1 trillion yuan, mainly concentrated in high-risk debt provinces. Luo Zhiheng told First Finance and Economics.

In recent years, affected by the epidemic, the downward pressure on the economy has increased, coupled with large-scale tax and fee reductions, the downturn in the real estate market, the growth of local fiscal revenue is weak, and the scale of borrowing has climbed, and the pressure on debt service in some places has increased sharply. Of course, on the whole, the debt risk of local governments is controllable, but some cities and counties have heavy debt burdens, weak solvency and high risks.

In this context, the State Council has formulated and implemented a package of debt plans to prevent local government debt risks. The Ministry of Finance urges local governments to coordinate all kinds of funds, assets, resources and various supportive policies and measures, pay close attention to cities and counties to increase their work, properly resolve existing hidden debts, optimize the term structure, reduce the interest burden, and gradually alleviate debt risks.

Judging from the 18 provinces that have disclosed the issuance of special bonds, it is not difficult to find that this special debt is obviously tilted towards the economically underdeveloped central and western regions and northeast regions, and to the provinces with heavy debt burdens.

Yunnan, Inner Mongolia and Liaoning currently disclose special debt scale of more than 100 billion yuan, ranking among the top three in the country. Tianjin is also approaching 100 billion, temporarily ranking fourth, followed by Guizhou, and Hunan also exceeds 50 billion yuan.

According to the recently released credit rating report of Yunnan Province Local Government Refinancing General Bonds (Phase V), the scale of debt in Yunnan Province has maintained growth in recent years. From the perspective of solvency, at the end of 2022, the adjusted government debt ratio of the Yunnan provincial government was 257.63%, and the adjusted government debt ratio was 62.46%, both at a high level, and the overall debt burden is relatively heavy. The debt balance in the above statistics includes half of the debt balance of the local urban investment company.

The 2022 local final account report disclosed by the Inner Mongolia Department of Finance frankly said that the scale of government debt in the region is still large, local risks are still high, and it is more difficult to resolve hidden debts. Part of the special debt obtained this time will be used to repay the arrears of enterprises, which will help alleviate the hidden debt risk in the local area.

Recently, the State Council also issued the "Opinions on Promoting the High-quality Development of Inner Mongolia and Striving to Write a New Chapter of Chinese-style Modernization", which proposes to effectively do a good job in local debt risk prevention and disposal.

Liaoning, which has weak fiscal revenue growth and greater pressure on debt repayment, has an explicit debt ratio of about 169% in 2022, ranking fourth in the country. The special refinancing bond support will help some cities and counties roll over or restructure non-standard high-interest or maturing hidden debt.

Tianjin, where the contradiction between fiscal revenue and expenditure is prominent, has a single source of funds for debt reduction, and the pressure of debt repayment is great, and the local government debt ratio ranks first in the country. Prior to this, Tianjin actively strengthened coordination and communication with financial institutions, carried out "peak shaving" management of high-interest debts, did a good job in debt mitigation in accordance with laws and regulations, optimized the term structure, and reduced the interest burden. The acquisition of a larger special debt quota this time will also help to roll over some debts and reduce interest rates and mitigate risks.

Guizhou's debt scale has continued to grow in recent years, and the adjusted debt ratio (about 258% in 2022) and debt ratio disclosed in the local credit rating report are at a high level, and the overall debt burden is relatively heavy, and it is facing greater pressure to rely on its own debt repayment. The acquisition of a larger amount of special debt this time will help alleviate local debt risks.

In recent years, the scale of Hunan's debt has continued to grow, and some local governments have a heavy debt burden. This year, the Hunan Department of Finance proposed to urge cities and counties to broaden the sources of funds for debt conversion and complete the task of debt reduction. Encourage financial institutions not to draw, stop lending, and reduce interest rates to replace existing debts, to ensure that existing debts are continuously chained, structures are continuously optimized, and costs are continuously reduced. The issuance of a larger amount of special bonds is used to repay existing debts, which will help resolve local debt risks.

It is worth mentioning that because the debt balance of each province is within the limit approved by the Ministry of Finance, and the economy continues to grow, and can receive special external support, the debt risk is generally controllable.

With this round of special refinancing bond issuance, the expectation of resolving the risk of local government debt is favorable for urban investment bonds. In some places, the coupon rate of urban investment bonds issued has dropped significantly.

Luo Zhiheng believes that special refinancing securitized bonds is only a short-term way to relieve pressure, but from a longer-term perspective, it is necessary to curb the soil for hidden debts through the linkage reform of institutional mechanisms. In the long run, the borrowing quota of each region should be determined according to the degree of economic development, borrowing capacity and authority, and the positive incentive effect of the borrowing quota should be brought into play. Through the linkage reform of institutional mechanisms, while stabilizing the macro tax burden, clarifying the relationship between the government and the market, defining the responsibilities and scale of the government, and solving the problems of excessive government functions and expenditure responsibilities with unlimited responsibility, this can fundamentally resolve debt risks.