China’s municipalities to issue special bonds for funding urban renewal, affordable housing to boost slumping economy

Issuing special bonds for urban renewal projects ‘is favourable for economic growth’, senior Natixis economist says

Municipalities across China had issued special bonds worth some 3.3 trillion yuan as of the end of September

2-MIN READ2-MIN

Shipai Village in Guangzhou city. Urban renewal projects are intended to help improve the living conditions of inhabitants in such urban villages. Photo: Simon Song

Published: 7:30am, 19 Oct 2023

Local governments in China are planning to issue special bonds to fund urban renewal projects and affordable housing, the latest in a series of moves made by municipalities to boost growth and turn the tide in a slumping economy.

The southern province of Hunan on Monday issued urban renewal special bonds worth 234 million yuan (US$32 million) with a five-year maturity and a coupon of 2.66 per cent, according to China Electronic Local Government Bond Market Access, a local government bond disclosure website.

With China in the final stretch as far as issuing special bonds for this year is concerned, local governments are already planning for the year ahead. The cash raised will fund projects in two new areas – urban renewal, or the renovation of urban villages, and affordable housing – in addition to sectors such as infrastructure, energy, healthcare, and vocational training, according to local media.

“Special government bonds are an important tool for China’s fiscal policy transmission, and [their] allowed usage has expanded over the years with a change in the definition of infrastructure,” said Gary Ng, a senior economist at Natixis, a French investment bank.

Unlike regular government bonds, special bonds are issued for the purpose of supporting a certain policy or solving a particular problem. Special bonds are generally more flexible than regular bonds and are excluded from China’s official budget.

As of the end of September, municipalities across China had issued special bonds worth some 3.3 trillion yuan, or 90 per cent of the official quota for 2023, as reported by local news outlets.