China issues guidelines on optimizing, improving management mechanism of local government special bonds

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China released guidelines for optimizing and improving the management mechanism of local government special bonds, the Xinhua News Agency reported on Wednesday. The opinions, released by the General Office of the State Council, the cabinet, outlined 17 measures across seven areas, with the goal of leveraging the positive effectiveness of special bonds in strengthening infrastructure, addressing weaknesses, improving public welfare, and boosting investment, according to the report. 

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The purpose of releasing these opinions is to optimize the special bond management mechanism, improve the efficiency of fund use, prevent debt risks, and enhance the role of special bonds in stabilizing investment and promoting development, Li Chang’an, a professor at the Academy of China Open Economy Studies at the University of International Business and Economics, told the Global Times on Wednesday.

Specifically, the opinions propose broadening the scope of investment for special bonds and their use as project capital. This includes implementing a “negative list” management approach for the investment scope of special bonds, allowing projects outside the “negative list” to apply for special bond funding.

At the same time, a “positive list” management approach will guide the use of funds as project capital, increasing the proportion of bonds that can be used as project capital. Specifically, on a provincial level, the cap for using special bonds as project capital will be increased from 25 to 30 percent of the total special bond scale allocated for project construction in each province.

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Additionally, the opinions highlight the importance of enhancing the budgetary balance for special bond projects, including strictly mitigating repayment risks associated with special bonds.

The opinions also commit to optimizing the review and management processes for special bond projects, which includes establishing a “green channel” for the continued issuance of bonds for ongoing projects.

The opinions urge governments at various levels to establish strong local frameworks for special bond management, ensure the proper use of bond funds, and prioritize the detailed execution of special bond management responsibilities.

The issuance of these opinions will further expand the scope of special bond investments and their use as project capital, Li said, noting that “It expands eligible investment areas and the range of applicable projects that can utilize these bonds, while also increasing the allowable proportion for project capital.”