Core view
The issuance of local government bonds is ahead of schedule, waiting for the social finance data to pick up again in January 2022. At the end of July 2021, the meeting of the Political Bureau of the CPC Central Committee proposed to "reasonably grasp the progress of investment in the budget and issuance of local government bonds, and promote the formation of physical workload at the end of this year and the beginning of next year", and established a policy inflection point. After August, the net financing amount of local government bonds increased significantly. In January 2022, the net financing amount of government bonds reached 526.357 billion yuan, a year-on-year increase of 46.49%. In the second half of 2021, new special bonds continued to be issued. From August to November, the circulation of the current month exceeded 600 billion yuan, far exceeding the issuance intensity over the years. The actual issuance of special bonds in 2021 was 98.20% of the government's expected target, higher than 96.05% in 2020. In addition, by the end of 2021, the Ministry of finance has issued a quota of 1.46 trillion new special bonds in 2022 to all localities in advance, focusing on nine directions, such as transportation, energy, agriculture, forestry and water conservancy, ecological and environmental protection. On January 13, Henan Province issued the first special government bonds of 38.201 billion yuan in 2022. More than 10 provinces and cities including Fujian, Shaanxi, Shandong, Jiangsu and Zhejiang also announced the local bond issuance plan for the first quarter of 2022. The rhythm of local bond issuance in 2022 was significantly ahead of that of last year. With the development of fiscal policy, the issuance of local government bonds was accelerated, and the social finance data could be expected to make a "good start".
The advance of policy is good for Q1, infrastructure investment stabilizes, and drives the recovery of medium and long-term loans of enterprises. In 2021, under the stricter supervision of local hidden debt, the growth rate of infrastructure investment was lower than expected, which dragged down China's economic growth. In December 2021, the cumulative year-on-year growth rate of infrastructure investment was 0.21%, and the two-year average growth rate was 1.81%. Compared with November, it increased by 0.38pct and 0.24pct respectively, and the effect of fiscal force was initially shown. In 2022, China's economy is facing triple pressures of "shrinking demand, supply shock and weakening expectation". Under the background of doing a good job in cross cycle regulation and "stabilizing the economy", the issuance of local bonds will be "opened" early in 2022. From the perspective of investment areas, infrastructure construction is one of the key areas of local bond investment this year. It is expected that the early issuance of local government bonds in 2022 will help the infrastructure investment to continue to stabilize and recover, drive the "stable economy", repair the financing demand of the real economy, drive the recovery of medium and long-term loans of enterprises, promote the volume of bank credit and improve the bank credit structure.
"Stabilizing the economy" has full determination, and the credit risk of commercial banks has been mitigated. From the perspective of "accurate and efficient monetary policies" and "fiscal policies" in 2022, it is necessary to issue bonds more quickly and accurately, and the financial policies should be issued more quickly. At the same time, on January 20, the one-year LPR decreased by 10bp and the five-year LPR decreased by 5bp. Although the interest rate reduction had a certain negative impact on the bank's net interest margin, the supervision had tried to guide the bank to reduce the debt end cost, and the negative impact of the downward interest margin on the net profit was expected to be limited. In addition, on the one hand, the reduction of loan interest rate is conducive to the repair of financing demand of the real economy, which can lead to a large amount of bank credit; On the other hand, the decline of loan interest rate improves the business pressure of enterprises and promotes the recovery of the economic environment. The decline of five-year LPR has a marginal positive effect on the real estate sales end. The improvement of the financing environment and business environment of real estate enterprises can slow down the credit risk of commercial banks and weaken the market's concerns about the quality of bank assets. Under the background of great downward pressure on the economy, the improvement of credit risk of commercial banks is the key factor affecting the fundamentals of banks.
Investment advice
At the end of 2021, the Ministry of Finance issued the new special bond limit of 1.46 trillion in 2022 in advance. On January 13, Henan Province issued the first government special bond of 38.201 billion yuan in 2022, and more than 10 other provinces also announced the local bond issuance plan in the first quarter of 2022. The rhythm of local bond issuance in 2022 is significantly higher than that of last year, helping the recovery of infrastructure investment enterprises and driving the "stable economy"; At the same time, the decline of loan interest rate is conducive to the improvement of enterprise business environment and the repair of financing needs of the real economy; The combination of fiscal and monetary policies is conducive to the volume of bank credit. In addition, under the background of great downward pressure on the economy, "stabilizing the economy" has full determination, which is conducive to the credit risk mitigation of commercial banks. Therefore, we suggest that joint-stock banks and regional banks that pay attention to the continuous improvement of asset quality.
Risk tips
The implementation of fiscal policy is less than expected; Macroeconomic growth slowed down.
