Reading guide
As one of the capital sources of infrastructure investment, special debt is an important driving force for making up for weaknesses, adjusting structure and stabilizing investment in recent years. The amount of new special bonds this year is 3.65 trillion, which is lower than last year, but still at a high level. Since the second half of the year, special bonds have gradually accelerated, but infrastructure investment has been “entrusted rather than carried out”. Why is the issuance of special bonds slow this year? What are the problems in the use of special bond funds? In the context of the new amount is not low, why does the special debt not support infrastructure? What is the expected amount of new special bonds next year? Can it stimulate the rapid growth of infrastructure investment? This paper mainly answers the above questions.
abstract
1、 Review on issuance and use of special bonds in 2021
1. Issuance rhythm: affected by the low pressure of steady growth in the first half of the year, the late issuance of the quota approved in advance and the stricter supervision of special bond projects, the issuance of new special bonds was slow before and fast after the 730 Politburo meeting.
2. Regional distribution: the issuance scale of new special bonds in Guangdong, Shandong and Zhejiang is top, all exceeding 200 billion yuan. Guangdong, Shandong, Zhejiang and other provinces not only have strong comprehensive financial resources and low debt repayment pressure, but also have concentrated major projects in the region. There are many approved new special bonds, and the issuance is naturally higher. As of November 30, the issuance scale of new special bonds in Guangdong, Shandong and Zhejiang provinces was 369.7 billion yuan, 306.5 billion yuan and 223.5 billion yuan respectively, accounting for 25.8% of the total issuance of new special bonds. Relatively speaking, the issuance of new special bonds in Ningxia, Tibet and Qinghai from January to November did not exceed 6 billion yuan. Among them, Ningxia has not issued new special bonds.
3. Fund Investment: the special debt is inclined to the fields of two new and one heavy industries and people’s livelihood, focuses on supporting major national strategic projects, and the proportion of investment in infrastructure has decreased. From January to November, 45.8% of the new special debt was invested in infrastructure (including infrastructure, industrial parks and urban-rural construction, with a wide range of caliber), compared with about 55% in 2020. Under the guidance of policies, this year’s new special debt was invested in “two new and one heavy” such as new infrastructure construction (6.6%), new urbanization construction (5.5%) and major engineering construction (21.1%) Domain tilt; At the same time, it pays attention to support for social undertakings and major national strategies, accounting for 10.9% and 3.3% respectively.
2、 Reflection on special debt
1. How to rationally view the relationship between special debt and infrastructure development? What role does special debt play in infrastructure investment?
As an important means for the government to develop infrastructure, special debt has always been highly expected. However, from the data point of view, the new special debt seems to have little pulling effect on infrastructure. Since 2018, the capacity of special bonds has expanded rapidly, but infrastructure investment has also fallen into a low growth state since 2018. Especially since August this year, the issuance of special bonds has accelerated, but infrastructure investment has remained in the doldrums. From January to October, the growth rate of infrastructure investment increased by an average of 1.9% in two years, down 0.1 percentage points from January to September.
First, the capital construction funds mainly come from the financing related to the urban investment platform. In the past, the capital construction investment cycle was basically synchronized with the debt cycle of the urban investment platform. Under the prevention of hidden debt risk, the financing of the urban investment platform was suppressed. In 2018, the urban investment platform ushered in the year of the strictest supervision, and urban investment bonds, non-standard and other financing forms were blocked, resulting in the suppression of the majority of capital sources of infrastructure.
Second, with the local government borrowing to open the front door and block the back door, special debt has become an important driving force for infrastructure investment. However, the capital that new special bonds can provide for infrastructure construction is less than one tenth of the scale of infrastructure investment. In the short term, it is difficult for special bonds to replace the urban investment platform and become the main source of capital for infrastructure construction.
2. What are the problems in the issuance and use of special bonds?
Local government bonds are heavily issued and lightly managed. There are some problems in the use of special bond funds, such as idle funds, low use efficiency and non-compliance of investment direction. The audit office issued the audit report of the State Council on the implementation of the central budget and other financial revenues and expenditures in 2020. It pointed out that by the end of 2020, 41.321 billion yuan had not been used strictly according to the purpose, accounting for 3.25% of the balance of regional special bonds, of which 5 regions invested 20.467 billion yuan in projects with no income or annual income less than principal and interest expenditure, and their solvency was worrying. The audit work reports issued by various localities also reflect that there are problems in the use of special bond funds, such as idle funds (Shandong, Shanghai, Hubei, etc.), low use efficiency (Jiangsu, Tianjin, etc.) and non-conforming investment (Hubei, Jiangsu, etc.), and some regions even use special bond funds to buy financial management.
3. How to treat the problem that the scale of special bonds exceeds that of local general bonds and possible risks?
In order to prevent the disorderly expansion of local debt, realize the dominance of implicit debt and improve the risk prevention ability of government budget management, since 2015, local governments have issued general bonds to pay non-profit public welfare expenditure and special bonds to promote the development of profitable public welfare undertakings. Driven by the active fiscal policy in recent years, the issuance scale of local bonds has increased rapidly. Especially since 2018, in order to cope with the downward pressure on the economy caused by the superposition of uncertain factors outside China, the special debt not included in the deficit has increased significantly, and the debt risk of local governments has increased accordingly. By October 2021, the balance of special debt of local governments had reached 15.9 trillion, exceeding 13.8 trillion of the balance of general debt.
First, at present, the project income of special bonds continues to decline and the risk gradually rises. Finally, they still need to be repaid by financial funds, which is becoming a de facto general debt. However, because the special debt is not included in the deficit, it is difficult to reflect the real risk of local governments. From 2015 to 2020, China’s deficit ratio increased from 2.4% to 3.7%, which is not a big increase on the surface. However, after the inclusion of special bonds, China’s broad deficit ratio will reach 7.4% in 2020, an increase of 4.9 percentage points over 2015.
Second, the current local government debt ratio has reached 87.2%. At the same time, the real estate policy is easy to tighten but difficult to loosen, and the local auction market is cold, resulting in a significant decline in real estate related taxes and land transfer income, a decline in the actual available financial resources and a decline in the solvency of local governments. In this context, if the amount of special debt remains high, it will challenge the sustainability of local debt.
Third, there is a trend mismatch between the expenditure structure and debt structure of local governments. It is necessary to optimize the debt structure of local governments, increase the proportion of general debt and reduce the proportion of special debt. On the one hand, as the focus of China’s economic development shifts from efficiency to fairness, from getting rich first to getting rich together, and continues to promote the equalization of basic public services, local government fiscal expenditure tilts from infrastructure to the field of people’s livelihood, while projects in the field of people’s livelihood such as social security, education and health care are difficult to generate income, which needs to be compensated by issuing local general bonds. On the other hand, since 2018, the proportion of special debt in the debt structure of local governments has continued to increase. By October 2021, the proportion of special debt had reached 53.6%, an increase of 16.3 percentage points over the beginning of 2018. However, at present, there are fewer high-quality projects of special bonds, and funds are idle in some areas, which reflects the problem of excess supply of special bonds to a certain extent.
3、 Prospect of special bonds in 2022: pay equal attention to steady growth and risk prevention, and it is expected to add 3.2 trillion yuan
In 2022, the downward pressure on the economy will increase, the fiscal policy needs to play a counter cyclical role, and the policy side needs to find a balance between steady growth and risk prevention. It is estimated that the amount of new special bonds will be 3.2 trillion yuan, the pace of issuance will be fast before and slow after, and more will be invested in infrastructure, forming a bottom for the economy of the whole year.
First, realistically make the risk explicit through general debt, convert part of the amount of special debt into general debt, and include it into the deficit. It is expected that the amount of special debt will be reduced to 3.2 trillion in 2022.
Even if the amount of new special bonds next year is lower than this year, considering that the 1.4 trillion new special bonds expected to be issued in the fourth quarter of this year have not been fully used for the physical workload at the end of the year and will form expenditure at the beginning of next year, the actually available special bond funds next year have not been reduced.
Second, the amount of new special bonds next year is expected to be issued in advance. In November, the person in charge of the Ministry of Finance said that he would study and do a good job in issuing the new debt limit of local governments in 2022 in advance in combination with the macroeconomic operation. At the same time, the infrastructure investment situation next year may change from “capital and other projects” to “project and other funds”, and the quota issued in advance will help to form the physical workload as soon as possible in the first half of next year.
Third, special bonds are invested in structural optimization, focusing on key areas and major project construction with greater efforts, especially in, new energy and new infrastructure to help stabilize investment. Considering the increasing willingness of the government to invest in infrastructure next year, the proportion of special bonds invested in infrastructure is expected to increase, but mainly in the field of new infrastructure.
Fourth, the focus of future special bonds will shift from “quantity” to “quality”, from “scale improvement” to “effectiveness”. In the future, the supervision will strengthen the prior evaluation, target management, operation monitoring and performance evaluation of special bond projects, urge local governments to spend their funds on the “blade” and improve the use efficiency of bond funds.
Risk tip: the reserve of high-quality projects is less than expected
