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China's local government debt problem has been in the spotlight, especially the hidden debt problem. Recently, the Standing Committee of the National People's Congress approved the central government to issue an additional 1 trillion yuan of treasury bonds in the fourth quarter, and at the same time, a number of provinces have also disclosed the proposed issuance of local bonds in the fourth quarter.
Judging from the current situation, 24 provinces and cities have planned to issue special refinancing bonds, with a total amount of more than 1,043.5 billion yuan, which is equivalent to the total amount issued in the three years of the epidemic (2020-2022). Special refinancing bonds are believed to reduce financing costs, reduce the debt burden of local governments, and help ease the pressure of local debt crises.
The issue of local government debt has always been a topic of great concern. With the downturn of the real estate industry and the sharp decline in land revenue, the financial pressure on local governments has gradually increased. The issuance of special refinancing bonds can help local governments deal with hidden debt problems and make debt more controllable.
The issuance of special refinancing bonds is part of the Chinese government's multi-round bond program. Since 2015, the Chinese government has conducted three rounds of implicit debt swaps, the third of which took the form of special refinancing bonds. The issuance of these bonds can not only help local governments deal with hidden debt problems, but also improve the maturity structure of debt, reduce the interest burden, and thus reduce debt risk.
The issuance of special refinancing bonds is considered different from the "Chinese version of quantitative easing (QE)" because it falls under the category of fiscal policy, not monetary policy. While central bank monetary policy support may be needed to maintain a stable interest rate environment, this does not constitute money creation. In addition, the issuance of special refinancing bonds does not affect the fiscal deficit for the year.
The issuance of special refinancing bonds has helped to solve the local government debt problem, but the current amount is still relatively limited. The financing needs of local governments still exist, as local governments play an important role in the economy, and the lack of domestic demand has been a focus of discussion. Therefore, it is necessary to further broaden financing channels to support local government investment and promote economic development.
On the whole, the issuance of special refinancing bonds is an effective way to deal with the hidden debt problem of local governments, which helps to reduce financing costs and debt burdens. However, it is important to note that this is not the "Chinese version of QE", it belongs to the realm of fiscal policy, not monetary policy. The issuance of special refinancing bonds can provide more financing channels for local governments, but it is necessary to continue to pay attention to the local government debt problem and ensure that debt risks are properly handled. At the same time, it is necessary to further explore how to broaden financing channels to support local government investment and promote economic development.