After the Ministry of Finance announced its plan to replace hidden debts with 10 trillion yuan of local government bonds over five years, the market has been paying close attention to the progress of this bond issuance. In fact, this work has already begun and has recently ushered in a second wave of bond issuance.
At the press conference of the Standing Committee of the National People's Congress on November 8, Minister of Finance Lan Fuan introduced the debt reduction package, clearly stating that starting from 2024, 800 billion yuan will be allocated from the newly added local government special bonds every year for five consecutive years to supplement the financial resources of government funds and be used specifically for debt reduction, which can replace a total of 4 trillion yuan of hidden debt. In addition, 2 trillion yuan of local government refinancing special bonds will be issued each year from 2024 to 2026, totaling 6 trillion yuan to support local governments in replacing various types of hidden debts.
According to the above-mentioned "4+6" bond issuance plan totaling 10 trillion yuan, China's local governments will issue 800 billion yuan of new local government special bonds and 2 trillion yuan of local government refinancing special bonds this year alone, totaling 2.8 trillion yuan of local government bonds to replace hidden debts and achieve extension and interest rate reduction, thereby greatly reducing the current pressure on local governments to resolve hidden debt risks (debt reduction) and free up funds and energy to promote economic growth and improve people's livelihood.
So, in the 10 trillion yuan debt reduction policy, how is the progress of replacing hidden debts with 2.8 trillion yuan of local government bonds this year?
Since June 19 this year, at least 26 provinces including Henan and Liaoning have successively issued special additional special bonds for existing projects, which are considered by the market to be used to replace implicit debts. The current scale exceeds 840 billion yuan. This means that the 800 billion yuan of additional special bonds to replace implicit debts have already been implemented this year, and the issuance of bonds is nearing completion.
A local financial official told Caixin that the replacement of hidden debts with 800 billion yuan of local new special bonds has already started, and these are the special new special bonds that the market is paying attention to.
As the above-mentioned additional 6 trillion yuan of local debt limit to replace hidden debt has been approved by the Standing Committee of the National People's Congress, the Ministry of Finance has publicly stated that some provinces have started the issuance work to speed up the implementation of the policy.
According to the China Bond Information Network, since November 12, Henan, Jiangsu, Qingdao, Dalian and Guizhou have disclosed plans to issue more than 220 billion yuan of refinancing special bonds to replace existing hidden debts. For example, Qingdao plans to issue 14.2 billion yuan of refinancing special bonds to replace hidden debts. Yicai learned from an informed source that this is part of the 6 trillion yuan quota for replacing hidden debts.
Luo Zhiheng, chief economist of Guangdong Securities, told Caixin that some provinces have launched a 6 trillion yuan local government bond plan to replace hidden debt. According to the bond issuance plan, 2 trillion yuan of this will be issued in November and December this year.
It is not difficult to predict that a wave of issuance of 2 trillion yuan of local government refinancing special bonds is about to come.
As for the impact of the debt-reduction package, Lan Fo'an previously stated publicly that it would solve the "urgent needs" of local governments, ease the current local debt-resolution pressure, and reduce interest expenses. In this replacement, 8.4 trillion yuan has been intensively allocated in the past three years, which has significantly reduced the scale of hidden debt that local governments need to absorb in recent years, allowing local governments to unload their burdens and travel with ease. At the same time, since the statutory debt interest rate is much lower than the implicit debt interest rate, local interest expenses will be significantly saved after the replacement. We estimate that a total of about 600 billion yuan can be saved in five years. In addition, chemical bonds also help local governments smooth capital chains and enhance development momentum.