The Chinese government has turned again to infrastructure to support a slowing economy, by ramping up the issuance of special local government bonds to support economic growth and maintain reasonable and ample liquidity in the market, according to an official central government notice, said the Financial Times.
Local governments and financial institutions are encouraged to use special bonds and other market-based financing methods to support key areas and major projects such as the coordinated development of the Beijing-Tianjin-Hebei region and the construction of the Yangtze River Economic Belt, said Xinhua.
The announcement also suggests recognition by policymakers that attempts to boost the economy by cutting taxes and encouraging sectors such as private companies, while closing off critical funding channels that have had limited success. Tougher action may be necessary and may be forthcoming, as pressure on the economy builds into the second half of the year. Local governments have been given more scope to use debt to capitalise infrastructure projects that meet official investment criteria.
Specifically, funds raised through the sale of special local government bonds may be used to help meet capital requirements, usually set at 20 to 25% of financing. The government this year earmarked RMB 2.15 trillion ($310 billion) in sales of such bonds, which payout from project cash flows rather than from fiscal resources.