Shenzhen floats idea of selling bonds directly in Hong Kong and Macau in China first
- Shenzhen’s finance bureau has floated the idea of selling local government bonds in Hong Kong and Macau
- If the plan goes ahead, the city will be the first local government to sell bonds directly beyond mainland borders
Shenzhen is exploring the possibility of issuing offshore government bonds in Hong Kong and Macau to tap into foreign investors and boost the local economy, according to an official report.
The plan was proposed by Shenzhen’s finance bureau at the annual local legislature meeting this week, partly to increase connections between financial markets in the two cities, said a report from the official Shenzhen Special Zone Daily.
If the plan goes ahead, it would be the first direct offshore bond issuance by a local government in China.
Shenzhen’s finance bureau added that the city’s debt level was low compared to others in China, indicating a better credit profile to woo investors.
On January 9, Shenzhen’s outstanding local government debt from bonds stood at 67.8 billion yuan (US$9 billion), the lowest among four first-tier cities including Beijing, Shanghai, and Guangzhou, according to financial terminal Wind.
The city is among the least vulnerable to debt risks in China, with much stronger fiscal revenues and new credit flows than many other cities, according to an analysis of financial stress among 208 Chinese cities from Rhodium Group, a New York-based consultancy.
Last year, Shenzhen’s fiscal revenue rose 3.5 per cent to 942.4 billion yuan (US$135.5 billion) from a year earlier, based on official data. By comparison, Beijing’s revenue grew by only 0.5 per cent to 581.7 billion yuan (US$83.6 billion) and Shanghai’s by 0.8 per cent, to 716.5 billion yuan (US$103 billion). In the first 11 months of 2019, Guangzhou’s revenue increased by 3.2 per cent to 153.4 billion yuan (US$22 billion).
“Compared to offshore bonds issued by LGFVs, an offshore bond issued by a local government will at least improve some transparency on the city’s financial health as the government needs to open up their books for investors,” said Terry Gao, an analyst from Fitch Ratings.
While Beijing is opening up its onshore bond market to foreign investors, local government bonds have been a hard sell.
The percentage of foreign investors snapping up local government bonds has remained relatively low, according to Hayden Briscoe, head of fixed income for Asia-Pacific at UBS Asset Management.
“We love the credit [of local government bonds],” said Briscoe. “Unfortunately there is no secondary market liquidity in a lot of the local government bond market. Our funds are open-ended funds, we can buy as many local government [bonds] as we want but we find it difficult to sell. So we are staying away from local government [bonds] until their secondary liquidity improves.”
Other foreign investors are not putting their money into local government bonds just yet because they are not familiar with the credit profiles, Briscoe said.
“When they make the allocation, it typically goes to [central] government bonds and policy bank bonds.”
Additional reporting by Amanda Lee