this annual inventory of the bond market focuses on the important bond issuing industry of urban investment. In addition to combing the policies and risks of the whole industry, it will also review and analyze the cases in key risk areas.
I. review and Prospect of urban investment industry
1. Industry policy inventory
Implicit debt control has become stricter. At the beginning of 2021, the exchange and dealers association restricted the issuance of bonds by local urban investment with high debt risk by referring to the classification of local government debt risk by the Ministry of Finance: the issuance of approval documents for the red file was suspended, the Yellow file could only borrow the new to repay the old, and the use of the green file was not limited.
This has built a new framework for issuing bonds by urban investment. The so-called local government debt risk level means that the Ministry of finance divides the debt risk into four levels: red (debt ratio greater than or equal to 300%), orange (debt ratio greater than or equal to 200%, less than 300%), yellow (debt ratio greater than or equal to 120%, less than 200%) and green (debt ratio less than 120%), The risk is from high to low.
Under the new framework, urban investment bonds are divided: the net financing scale of urban investment bonds of Jiangsu and Zhejiang provinces from January to November reached 505.8 billion yuan and 459 billion yuan respectively, accounting for 52.6% of the country. Relatively speaking, 9 provinces and cities such as Tianjin, Yunnan and Liaoning showed net repayment. Among them, the issuance of urban investment bonds in Tianjin from January to November was 135.8 billion yuan, only 50% of the maturity scale. It is difficult for urban investment platforms in the region to repay the old by borrowing new ones, and there is great debt repayment pressure.
Secondly, it was launched in Document No. 15 of the middle of the year that the financing platform undertaking the implicit debt of local government shall not provide new flow loan or flow loan financing.
For traditional urban investment enterprises mainly engaged in public welfare business fields such as infrastructure construction, their financing is mostly used for specific projects and rely less on working capital loans. However, urban investment enterprises with more market-oriented businesses have less project financing and rely more on working capital loans. Under the regulatory background of “No. 15 document” strictly restricting the flow of loans, the financing of partial market urban investment enterprises involving the implicit debt of local governments has been greatly affected.
From the perspective of implementation, the state-owned banks generally implement it strictly, especially on the issue of whether to continue the existing current loan when it expires; Urban commercial and rural commercial banks have close contacts with local governments, and some of them are strongly dependent on government information business. Most of the current loans at maturity can be renewed; Stock banks have both.
Thirdly, the regulatory authorities should strengthen the audit and verification of the situation of chemical debt. From March to April 2021, the audit department and the local financial supervision bureau of the Ministry of Finance checked and audited the resolution of implicit debt from August 2018 to 2020. In the fourth quarter, the supervision began to check the resolution of implicit debt and early rectification in the first half of 2021. This mainly implements the work of “paying close attention to the resolution of hidden debt” proposed by the central economic work conference in 2020, because some places engage in false debt and digital debt.
The key verification and audit contents mainly include three aspects: first, whether the stock debt resolved by revitalizing capital assets is compliant; second, whether it is compliant to convert part of the debt with stable cash flow into enterprise operating debt; third, whether the debt resolved by local government and social capital is compliant. The main purpose of these works is to improve the data quality and make the data more accurate.
It is worth noting that in April 2021, the State Council issued the opinions on further deepening the reform of budget management system [GF [2021] No. 5], which proposed to clean up and standardize local financing platform companies, divest their government financing functions, and implement property destruction, reorganization or liquidation for those who lose solvency according to law. This expression is used in the documents issued by Jiangsu, Yunnan, Guizhou, Hunan and other provinces.
Urban investment bankruptcy is not a new formulation. In September 2018, the guidance on strengthening the asset liability constraints of state-owned enterprises issued by the general office of the CPC Central Committee and the general office of the State Council proposed that local government financing platform companies with serious insolvency and loss of solvency should be subject to bankruptcy reorganization or liquidation according to law, and resolutely prevent “too big to fail” and risk accumulation from forming systematic risks. At the same time, we should do a good job in maintaining social stability related to enterprise bankruptcy. At present, the local government only cites the central documents, but the local government’s re mention reflects its determination to implement the central policy and its attitude of breaking the rigid exchange of urban investment.
In contrast, it was raised again in 2021, attracting market attention. It may be that, first, at present, urban investment bonds account for an increasing proportion of credit bonds, and most market institutions have allocated urban investment bonds; Second, the non-standard default of urban investment has been normalized, and the time point of breaking the just exchange of urban investment bonds is getting closer and closer, so the bankruptcy of urban investment has also been put on the agenda.
In recent years, the beliefs of state-owned enterprises and banks have been broken one after another, but the belief of urban investment is not broken, which is not conducive to the establishment of a market-oriented restraint mechanism. Therefore, the bankruptcy of urban investment helps to break the illusion of the government, strengthen the issuance of urban investment bonds and the construction of market-oriented ideas of investors, and facilitate the clearing of the market. However, considering the huge impact of the bankruptcy of urban investment on the market, the regulatory authorities require that the bankruptcy of urban investment needs to be examined and approved by the superior government, and inform the central bank, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and other relevant departments to ensure that the risk is controllable.
At present, there are few cases of bankruptcy or liquidation of urban investment, and most of them choose merger and reorganization to avoid damage to the local financing environment. In the long run, some urban investment companies may go bankrupt in the future.
In 2021, the supervision of urban investment is also advancing in depth. In 2021, many provinces held relevant meetings and stated that they should dig deep into the corruption hidden in the risk of local debt.
As an economic entity mainly undertaking the financing function of government investment projects, investment and financing platform company is a “enrichment area” with relatively concentrated public resources such as capital, land and equity, and a “high incidence area” for illegal financing guarantee, illegal borrowing, illegal debt investment and other problems. Corruption in the field of investment and financing will not only cause huge losses of state-owned assets and increase the risk of government investment and financing, but also lead to serious consequences such as hidden dangers in the quality of public construction projects, deterioration of business environment and destruction of political ecology.
Corruption is often behind financial risks. Following the investigation of a number of cases in Jiangsu, Hunan also announced a number of cases of corruption in financing platforms, and the curtain of local debt anti-corruption slowly opened.
2. Industry performance
According to the data of Jiuyang science and technology, the changes of OAS (credit spread) are as follows:
Due to the impact of the epidemic, the GDP growth of Hubei Province is at the end, and the GDP of Guangdong, Jiangsu and Shandong ranks among the top three.
In terms of total GDP, in 2020, the total economic output of Guangdong Province in 2020 was 11 trillion, with a year-on-year growth rate of 2.3%, ranking first in China, while Jiangsu Province ranked second with a scale of 10.27 trillion, with a year-on-year growth rate of 3.7%. Shandong Province ranked third, with a total GDP of 7.31 trillion in 2020, a year-on-year increase of 3.6%.
In terms of GDP growth, in 2020, the GDP growth of 20 provinces exceeded the national growth rate.
They are Tibet, Guizhou, Yunnan, Anhui, Hebei, Chongqing, Gansu, Ningxia, Sichuan, Hunan, Jiangxi, Jiangsu, Guangxi, Shandong, Zhejiang, Shanxi, Hainan, Xinjiang, Fujian and Jilin. The GDP growth rate of Hubei, which is most seriously affected by the epidemic, is – 5%.
There is a large net outflow of population from the central and western regions and the northeast, mainly into Guangdong, Zhejiang and Shanghai. From the perspective of net population inflow, we have calculated the difference between permanent residents and registered residence population. It can be found from the data that the net outflow of population in Anhui, Henan, Guangxi, Guizhou and Sichuan is relatively high. The main absorption of floating population is in economically developed regions such as Guangdong, Zhejiang and Shanghai.
The decline of fiscal revenue combined with the rise of debt has led to a sharp rise in the broad debt ratio in Tianjin. On average, the broad debt ratio of all provinces as a whole is 274%. Tianjin is at the highest level with a broad debt ratio of 757%. Followed by Liaoning (490%), Beijing (428%), Jiangsu (417%) and Chongqing (396%).
The financial balance ability of more than 80% of the provinces has weakened, and the financial balance degree of Tianjin has fallen sharply except Hubei. Affected by the epidemic, the contradiction between China’s fiscal revenue and expenditure has further become prominent. By the end of 2020, the average and median fiscal balance rates of all provinces have decreased compared with 2019. Among them, the financial self-sufficiency rate of 26 provinces is lower than that in 2019. On the whole, the self-sufficiency rate of the eastern and southern coastal regions is at a strong level, while the financial balance of some western regions and northeast regions is weak. Specifically, Shanghai (87%) in the East ranks first in all provinces. Among the three northeastern provinces, the fiscal balance rate is 44% in Liaoning, 26% in Jilin and 21% in Heilongjiang. There is a large gap in revenue and expenditure. The overall financial balance capacity of western provinces is weak, 28% in Guangxi, 30% in Yunnan, 31% in Guizhou and 38% in Sichuan. Except Chongqing, other provinces are at a low level.
From the change of financial balance, Tianjin’s financial balance rate decreased by 7.67 percentage points year-on-year to 61.02%, the largest decline in the eastern region. Compared with 2019, the fiscal balance rate of Western Guangxi decreased by 3.08 percentage points to 27.89%, the largest decline in the region. In Liaoning in Northeast China, the financial self-sufficiency rate decreased by 5.99 percentage points compared with 2019, the largest decline in the region. At the same time, due to the impact of the epidemic, the fiscal revenue and expenditure gap in Hubei is the most significant, and the fiscal balance rate is 12.77 percentage points lower than that in 2019 to 29.76%, ranking the first in China.
In the regions with high generalized debt ratio, Sichuan, Hunan, Jiangsu and other places have high land financial dependence. With the decline of land acquisition data of real estate, we have seen the rise of auction rate of land transfer in some regions, superimposed with the decline of land transfer income.
According to the data from January to November 2021, the growth rate of land transfer fee income in Hainan, Heilongjiang, Yunnan and Tibet fell by more than 50%; Guangxi, Inner Mongolia and Shanxi exceeded 40%, down 41.6%, 44.1% and 45.1% respectively. Ningxia, Hebei, Guizhou, Xinjiang, Jiangxi and other provinces fell by 30% – 40% year-on-year. The land transfer income of Sichuan, Hunan, Henan, Liaoning, Jilin, Gansu and Fujian provinces decreased by 19.3%, 19.9%, 20.2%, 20.6%, 21.5%, 24.9% and 29.6% respectively. At the same time, we also sorted out the list of cities with high land financial dependence and high generalized debt ratio for investors’ reference.
3. Urban investment risk and stability maintenance
However, with the introduction of a series of measures to stabilize state-owned enterprises and urban investment bonds, there was no single default of urban investment bonds in 2021, even if it was technical.
The first is the establishment of the financial risk disposal mechanism in charge of the main leaders of the local party and government. In April 2021, the Politburo meeting proposed to establish a financial risk disposal mechanism responsible for the main leaders of local party and government; In July, the Politburo meeting said that the financial and financial risk disposal mechanism responsible for the main leaders of local party and government should be implemented.
From “establishment” to “implementation”, it means that this mechanism is gradually approaching. On August 10, the first meeting of Qinghai Provincial Leading Group for financial risk prevention and resolution was held in Xining. Qinghai was the first province to establish this mechanism.
In October, Quanzhou City, Fujian Province established a leading group for financial risk prevention and resolution. The group is headed by the Secretary of the municipal Party committee and the mayor of the municipal government, and deputy heads are members of the Standing Committee of the municipal Party committee, the secretary general, the deputy mayor in charge, the director of the Municipal Public Security Bureau, the president of the Municipal Intermediate Court and the procurator general of the municipal procuratorate, so as to strengthen the overall leadership over the prevention and resolution of financial risks in the city.
Combined with the cases of Qinghai Province and Quanzhou City, the financial risk disposal mechanism in the charge of the main leaders of the party and government is not only established by the provincial government, but also by cities and counties.
From the perspective of personnel composition, the team implements the “double team leader system”, with the party secretary and executive head as the team leader. The leading group is also highly qualified. The Qinghai leading group is led by six provincial cadres, and the Quanzhou leading group is led by at least seven department level cadres. The coordination ability of this group is super strong, which is conducive to the cashing of urban investment bonds in the short term.
Secondly, many places have established credit insurance funds to repair credit in the short term. Since 2021, credit guarantee funds have been established in Henan, Guangxi, Tianjin, Chongqing and other places. In addition, Gansu Lanzhou and Shandong Weifang have also established SINOSURE funds.
The so-called credit guarantee fund refers to the fund pool funded by the government, entity enterprises or financial institutions for the purpose of providing credit guarantee, short-term capital turnover and other credit guarantee services to enterprises. Its capital sources are mainly local finance, state-owned enterprises and financial institutions, which are used to resolve debt risks and increase credit.
From the actual effect after the establishment of the credit guarantee fund, the credit guarantee fund has a certain boost to the confidence of market investors in the short term, and the short-term repair is more obvious. In the medium and long term, the healthy development of the financing environment in the region still needs to be supported by the improvement of the overall fundamentals, such as the improvement of economic and financial strength, the relief of debt pressure, etc.
Thirdly, 800 billion special refinancing bonds were issued to replace implicit debt. Since 2021, all localities have issued 817 billion special refinancing bonds.
Refinancing bonds are a type of local government bonds, which were mainly used to repay the principal of maturing local government bonds. Different from the previous bonds used to repay the principal of bonds and mark which local government bonds to repay, the purpose of refinancing bonds of more than 800 billion yuan in 2021 is only vaguely expressed as “used to repay stock debts”.
This kind of special refinancing bonds is divided into two categories. One is used for the pilot of implicit debt risk resolution in established counties and regions, mainly to help high-risk regionalized debt. On September 13, after the issuance of Guizhou’s 3.3 billion yuan special refinancing bonds, the special refinancing bonds used for the pilot of implicit debt risk resolution in established counties and regions were issued.
The other is used for the pilot of no implicit debt in the whole region, mainly to reward regions with good debt control. From October to December, Guangdong, Shanghai and Beijing successively issued about 300 billion special refinancing bonds, which were specially used to repay the stock debt. Market analysis believes that this batch of special refinancing bonds is related to the “official launch of the pilot work of no implicit debt in the whole region” proposed locally, which will help clear the local implicit debt.
The current market is also concerned about whether the replacement of implicit debt by refinancing bonds will expand. This replacement is different from the previous one. The implicit debt decreases and the government debt balance increases. Therefore, the replacement amount comes from the part where the local government debt balance is lower than the limit. According to the data, by the end of 2020, the debt limit of local governments was 28.8 trillion, with a balance of 25.6 trillion. Theoretically, there was still room for 3.2 trillion.
However, the replacement of implicit debt into legal debt faces two major constraints: first, the local government debt ratio is near the warning line of 100% at the end of 2021. The replacement of implicit debt into legal debt will further increase the risk of legal government debt.
Second, the pilot project to resolve the hidden debt risk in organic counties has mitigated the risk of high debt areas, and moral hazard will arise if the replacement is further expanded; They want to resolve their debts, but the actual result may be that regions that borrow too much will be rewarded and break the “two illusions” (resolutely eliminate the “illusion” that local governments think the central government will “pay” and financial institutions think the government will reveal the bottom) will become empty talk.
Since 2018, the regulatory authorities have strictly controlled the implicit debt. Non-standard default of urban investment has been common, and there are occasional cases of technical default of urban investment bonds. However, under the above-mentioned pressure, there was no single default of urban investment bonds in 2021, even if it was technical. The reason is that a series of measures to stabilize the bonds of state-owned enterprises have been launched, including the establishment of a financial risk disposal mechanism responsible for the main leaders of local party and government, the establishment of local credit guarantee fund, 800 billion special refinancing bonds to replace hidden debt, etc.
Despite the increased willingness of local confirmation and payment, there is a strong risk aversion among market investors, and the urban investment bond market presents a phenomenon of polarization and uneven hot and cold on a provincial basis.
4. Urban investment outlook in 2022
Under the background of relatively loose liquidity, the overall financing performance of urban investment in 2021 is good. The data show that the issuance of urban investment bonds is about 6.14 trillion, an increase of 1.06 trillion compared with the whole year of 2020, reaching a new high; However, due to the large maturity scale, the net financing scale of urban investment is slightly lower than that in 2020.
The data also show that the issuance of local bonds in 2021 was 7.48 trillion, an increase of 1.04 trillion compared with the whole year of 2020, a record high; The issuance of local bonds increased, mainly refinancing bonds: the issuance of refinancing bonds was 3.12 trillion, an increase of 1.23 trillion compared with 2020. Firstly, due to the large maturity scale of local government bonds, the scale of refinancing bonds to be issued has increased; secondly, due to the large issuance of special refinancing bonds.
After the substantial increase in the amount of local debt, the local government debt ratio has fallen into the warning range. For example, according to the relevant financial data predicted in the 2021 budget report, the total amount in 2021 is 30.30 trillion, and the corresponding local government debt ratio has reached 100%, touching the early warning line. In this context, the steady growth of local debt needs to be balanced against risks.
Looking forward to 2022, first, the overall default risk has decreased. In 2022, the pressure on steady growth will increase, and the probability of urban investment refinancing policy will not be tightened. It is just the first year after the change of local government and the 20th National Congress. The local government will strengthen its willingness to maintain stability and exchange, and the overall default risk of urban investment bonds will decrease.
Second, the regional financing of urban investment “the strong is always strong, and the weak is always weak”. In the short term, the regulation and control of urban investment will still be “stable”, but with the continuous exposure of non-standard debt risks in some regions, the regional differentiation pattern of urban investment bonds may evolve into a long-term trend and continue to intensify: in areas with relatively heavy debt burden and declining regional economic and financial strength, urban investment bond financing will be compressed (the weak will remain weak), while the debt burden is relatively light Where the regional economic and financial strength increases, the urban investment bond financing will also rise (the strong will always be strong).
Third, hidden debts will be cleared in some places and financial restructuring will be carried out in some places. Guangdong and Shanghai have started to clear the implicit debt, and the debt of some regions under their jurisdiction will be cleared by the end of 2021. In the government work report released on May 25, Shenzhen proposed to strengthen risk awareness, actively prevent major risks and challenges, and take the lead in clearing all government implicit debts. Meixian District of Meizhou City said that the government’s debt financing behavior should be standardized, and the government’s implicit debt could be “cleared” by the end of 2021, and the debt level was generally controllable.
Under the background of the downward trend of the land market, it is expected that the land transfer income of local governments will decline in 2022. This means that the pressure of fiscal expenditure in some areas has increased significantly, and the proportion of special debt interest payment may exceed 10% in stages. Some places may need to start fiscal restructuring.
The term “financial restructuring” comes from GBH No. 88 in 2016. The document proposes that the municipal and county debt management leading group or debt emergency leading group can start the financial restructuring plan when it deems it necessary. In addition, if the interest payment expenditure of general / special debt exceeds 10% of the budget expenditure of general public / government funds in the current year, financial restructuring must be started.
During the financial restructuring period, in addition to the necessary basic livelihood policy expenditure and government effective operation expenditure, other financial expenditures of the government at the same level shall maintain “zero growth” or be greatly reduced according to the debt risk level. Financial restructuring does not mean bankruptcy and reorganization of local governments. The financial restructuring plan is actually a rearrangement of the government budget. It is a different concept from debt restructuring, not to mention the government’s bankruptcy plan.
II. Risk area case
1. Case study of Tianjin regional urban investment
In recent years, credit events have occurred frequently in Tianjin. Taking the big bang in Binhai New Area in 2015 as the turning point, Ruihai International Logistics launched the first shot of Tianjin risk events, and then Taiheng gas and Tianjin Municipal Development defaulted one after another. However, investors still have confidence in state-owned enterprises until Bohai iron and steel became the first local state-owned enterprise defaulting on Tianjin’s debt, It also opened the domino of default of state-owned enterprises in Tianjin, and the risk of private enterprises turned to that of state-owned enterprises. The successive defaults of tianwu group in 2019 and Tianfang group in 2020 have greatly dampened investor confidence, increased regional risks and greatly increased the difficulty of regional financing.
Behind the frequent occurrence of risk events is the obstruction of Tianjin’s previous development model driven by major investment. In the early stage of Tianjin’s investment driven GDP mode, many state-owned enterprises in Tianjin were in debt when they were in the boom of the industry. After the downturn, they could not keep up with the liabilities. After default, banks are more cautious in lending, and Tianjin regional financing is also affected.
After the “Big Bang”, Tianjin’s major investment driven development model was blocked. First, the rectification of dangerous chemical enterprises in the city caused economic losses to Tianjin, which is dominated by traditional heavy industry and light industry. Since then, Tianjin has promoted industrial transformation and affected by environmental protection policies, Tianjin’s secondary industry has declined since 15 years. Economic growth also began to decline significantly. The GDP growth of Tianjin gradually decreased from 8.15% in 2016 to 3.71% in 2017. In 2018, Tianjin’s GDP “squeezed water” to 1.34 trillion yuan, which greatly reduced the denominator of debt ratio and increased the debt ratio. The impact of the epidemic in 2020 also slowed down the GDP growth of Tianjin, with a year-on-year increase of 1.5%.
In recent years, the debt ratio of Tianjin has risen. The data show that the generalized debt ratio of Tianjin in 2020 is as high as 757%. Except Binhai New Area, the broad debt ratio of all regions in Tianjin will rise rapidly in 2020. On the other hand, Tianjin’s fiscal revenue grew sluggishly or even declined. Tianjin’s general public budget revenue peaked in 2016 and began to decrease. In 2020, Tianjin achieved a general public budget revenue of 192.3 billion yuan, a sharp decline of 20.2% compared with 2019. The market is worried about the solvency of Tianjin.
In the past two years, in addition to the bond default of Tianfang group, non-standard default has also occurred in some Tianjin urban investment and its subsidiaries. For example, two companies under Tianjin Municipal Construction Group Co., Ltd. have overdue debts. In December 2020, Tianjin Songjiang Co., Ltd. announced that 1.35 billion debts were overdue. As of June 30, 2021, Tianjin Binhai Development Investment Holding Co., Ltd., another company under Tianjin Municipal Construction Group Co., Ltd. and the controlling shareholder of Tianjin Songjiang shares, has a debt overdue amount of about 2.911 billion yuan and a litigation amount of about 1.966 billion yuan due to debt problems.
Frequent risk events make it more difficult for weak qualified areas such as Tianjin to finance after Yongmei’s default. The net financing amount of Tianjin in one year from November 10, 2020 to November 10, 2021 is – 124.3 billion yuan, and the net financing amount in most months is negative.
Compared with the data of Jiuyang technology factor, the cumulative return of Tianjin urban investment factor also shows a downward trend as a whole. At the same time, since 2021, the implied default rate of Tianjin urban investment has increased significantly. After the Tianjin municipal government held a forum in June, the market sentiment has been repaired. Under the impact of the failure to alleviate the financing pressure, the implied default rate has increased significantly again.
In June 2021, in order to boost investor confidence, Tianjin held a bond market investor forum. Relevant leaders of Tianjin said that they would do everything possible to maintain the credit ecology. It is mentioned that we should improve credit enhancement and strengthen liquidity support. At the same time, Tianjin will be revitalized by accelerating the disposal of state-owned assets; Comprehensively implement classification and stratification to resolve the stock debt risk of problematic enterprises; And inject high-quality assets to maintain the credit ecology of Tianjin bond market. Tianjin SASAC also approved the establishment of a high-quality development fund of Tianjin state owned assets with a total scale of 20 billion yuan. After the symposium, Tianjin’s credit spread fell slightly and soared again in August. Since then, there has been a wave of obvious decline. However, compared with coal, steel credit spread has fallen to near before the Yongmei incident, the market confidence of Tianjin urban investment bonds has obviously not recovered.
Under the huge pressure of repayment due, the net financing amount of Tianjin even reached – 50.23 billion in October 2021. The policy environment of tightening urban investment bonds has also brought greater pressure on weak qualified areas such as Tianjin. At present, Tianjin has come out of the most difficult period. From the first quarter of 2020, Tianjin’s GDP began to rise quarter by quarter. In the first half of 2021, Tianjin’s GDP was 730.9 billion yuan, a year-on-year increase of 11.4%; In the first three quarters, Tianjin’s GDP was 1.14 trillion yuan, a year-on-year increase of 8.6% at comparable prices. However, it will take time for investors’ confidence in Tianjin to recover.
2. Case study of Weifang regional urban investment
Weifang is located in Jiaodong economic circle of Shandong Province. It is an important transportation hub of Shandong Peninsula. The leading industries mainly include agriculture, equipment manufacturing, textile industry and chemical industry. However, with the transformation of old and new kinetic energy in the province, the chemical industry has entered the production capacity elimination cycle, facing great transformation pressure.
In 2020, Weifang achieved a GDP of 587.2 billion yuan and a general public budget revenue of 57.39 billion yuan, ranking third in the province after Qingdao, Jinan and Yantai. Weifang City has a high dependence on land finance. The data show that the dependence on land finance in Weifang City is about 120%. Meanwhile, Weifang’s tax revenue accounts for 74.25% of the general public budget revenue, ranking fifth in the province. In terms of liabilities, Weifang local government has great debt pressure. By the end of 2020, Weifang’s local government debt balance was 143.6 billion yuan, and its debt ratio (government debt balance / GDP) was 24.45%, ranking sixth in the province (from high to low); The debt ratio is 85.30%, and the wide caliber debt ratio is high, 312.54%, ranking second in the province (from high to low), second only to Qingdao.
Weifang governs 4 districts, 2 counties and 6 county-level cities. In terms of districts, from the perspective of debt scale, the government debt balance of districts under the jurisdiction of Weifang City varies greatly. Among them, Shouguang is the highest, reaching 15.801 billion yuan by the end of 2020 (excluding implicit debt, the same below); Followed by Zhucheng, with 15.579 billion yuan; The third is Qingzhou City, which is 11.438 billion yuan. The debt balance of other local governments is less than 10 billion yuan, and the debt balance of Fangzi District, Weicheng district and Kuiwen District is relatively low, all less than 5 billion yuan.
In terms of debt ratio (debt balance / GDP, excluding hidden debt), Hanting district is the highest, up to 32.66%, followed by Linqu County and Fangzi District, 25.43% and 25.31% respectively; Weicheng district and Kuiwen District have low debt ratios, both below 10%.
In terms of debt ratio (local government debt balance * 100% / local government comprehensive financial resources), Changyi city is the highest, reaching 118.54%, followed by Anqiu City (87.9%) and Hanting district (82.96%). If the caliber is relaxed, from the perspective of wide caliber debt ratio (local government debt balance + interest bearing debt balance of regional financing platform) * 100% / comprehensive financial resources of local government), Kuiwen District (35.82%) with low debt ratio ranks first, reaching 528.19%, followed by Shouguang City (483.53%) and Gaomi City (344.41%).
According to the data, Weifang urban investment bonds will mainly expire in 2025 and 2024, reaching 30.506 billion yuan and 29.885 billion yuan respectively. In addition, Weifang has great debt repayment pressure in recent one year, and the total balance of urban investment bonds due within one year is about 32.343 billion yuan. After Yongmei’s default in 2020, the belief of state-owned enterprises was impacted, the degree of market-oriented issuance of Weifang urban investment platform was not high, and the guarantee of private enterprises in the superimposed region was high, which led to the decline of market confidence in Weifang regional urban investment platform.
In order to boost investor confidence, Weifang held an investment institution docking conference in October 2021. Relevant leaders of Weifang revealed that Weifang is planning to establish a special debt credit enhancement fund of 5 billion yuan and a bond investment fund of 8 billion yuan. In addition, Weifang requires unified leadership for debt risk prevention and control of state-owned enterprises, strengthen resource planning, especially urban planning, compact territorial responsibility and improve accountability mechanism. At the same time, Weifang focuses on monitoring the enterprises with high asset liability ratio and obvious benefit decline, closely monitors the debt changes, and ensures the immediate disposal of any risk. From the perspective of monthly net financing amount, the net financing amount of credit bonds in Weifang City decreased all the way from August 2020 to February 2021. After the docking conference of investment institutions was held in October, the issuance of credit bonds in Weifang increased significantly.
From the perspective of the net financing of Weifang urban investment and bond issuing entities in 2021, the monthly net financing amount was negative in January, may, July, September and October 2021, reflecting the increased difficulty and lack of market confidence of Weifang urban investment entities in financing through the domestic bond market. From the trend of credit spread, Weifang’s credit spread widened from the end of 2020 to the first ten days of April 2021. After that, it experienced a sudden narrowing and gradually stabilized, and did not narrow down until October.
Weifang’s regional financing environment is tightening, and the market is worried about the continuation of Weifang’s next urban investment debt and the government’s attitude towards preventing local debt risks. In terms of the primary market, in the same time period before and after Yongmei’s default, the reduction of the net financing scale of Weifang urban investment entities was greater than that of Shandong and the national average. Since the middle of the year, the overall net financing of urban investment entities in Weifang has shown a downward trend, with negative values in September and October, reflecting that the financing difficulty of urban investment entities in Weifang in the bond market has gradually increased, and the market confidence in them has begun to decline. In the secondary market, the performance of the core head platform is relatively stable, and the weak qualified platform with high pressure on short-term debt repayment is facing great upward pressure on valuation.
(source: 21st Century Business Herald 21 finance APP)
