Coronavirus: China local government debt could hit record high as Beijing front-loads more bonds

China announced this week it will bring forward another 1 trillion yuan in advance quota of local government special purpose bonds

Beijing hopes infrastructure spending will curb the economic fallout from the coronavirus, but concern is mounting about local government debt

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China is hoping infrastructure spending by local governments will curb the economic fallout from the coronavirus outbreak. Photo: Xinhua

Published: 9:00pm, 14 May 2020Updated: 9:27am, 15 May 2020

Local government borrowing in China is likely to hit record highs this year, as Beijing continues to shovel money into infrastructure projects to keep regional economies afloat.

The growth of local government debt slowed last month to 286.7 billion yuan (US$40.4 billion), down 26 per cent from 387.5 billion yuan in March.

But the finance ministry said on Monday it would bring forward another 1 trillion yuan in advance quota of local government special purpose bonds to fund infrastructure projects.

The move could swell local government debt to a record high of nearly 3 trillion yuan for the first five months of the year, compared to 1.9 trillion yuan from a year earlier.

China has announced a new round of local government special purpose bonds to fund infrastructure projects. Photo: Xinhua

Beijing is banking on infrastructure spending to help curb the economic fallout from the coronavirus outbreak, with local authorities asked to raise money through special purpose bonds to minimise the growth of “hidden” off-budget debt, a financial risk that has plagued China for over a decade.

“The key benefit of using special purpose bonds is that it’s more transparent. You can see exactly how much new funding local governments are taking on and you can see how that would impact their direct debt,” said Jack Yuan, assistant vice-president at ratings agency Moody’s.