China urges local governments to issue fresh bonds, amid jitters over huge debts
Central government directive comes as revenue from land sales fall and local authorities owe an estimated 17.9 trillion yuan
China’s Ministry of Finance has warned of slowing tax revenue growth and told local authorities to hasten the issuance of newly-approved municipal bond debt, signalling official concern over provincial budgets at a critical time for the economy and planned fiscal reforms.
The Ministry of Finance said in a statement that local finance bureaus should “speed up local government debt issuance and scheduling, rationally set debt issuance times and urgently complete the work of issuing bonds”.
The direction to accelerate bond issuance comes as local government revenue from land sales is dropping sharply and signs emerge that the ministry’s plan to tap China’s fledging local government bond market to make up for the loss of tax proceeds may be faltering.
Reports that banks are reluctant to purchase the new debt at the yields on offer have appeared in official media following the postponement, for unspecified reasons, of a Jiangsu provincial bond auction initially set for April 23.
The Economic Information Daily, a newspaper affiliated to the state-run news agency Xinhua, reported on Friday that another province may also delay a planned debt auction because of a lack of investor interest.
China’s local governments are struggling with an estimated 17.9 trillion yuan (HK$22.7 trillion) of debt, much of it high yield and held off-balance sheet by “local government financing vehicles”. Chinese municipalities were, until last year, largely prohibited from issuing official debt.