Chinese local governments significantly increased borrowing in the first six months through urban construction investment platforms as part of efforts to boost economic recovery from the COVID-19 pandemic, reported Caixin.
Total issuance of urban construction investment bonds increased 30% year-over-year in the first half, exceeding RMB 2 trillion ($285.7 billion), according to China Chengxin Credit Rating Group. The net financing amount for the first half was RMB 1.1 trillion, close to the size of the whole year of 2019.
Amid a looser financing environment, urban construction investment enterprises can replace high-cost funds with lower-cost bonds, which can also extend debt maturity and help relieve short-term debt repayment pressures, said Wang Jun, managing director of the public financing rating department at Chengxin.
As China’s economy recovered well in the first half, macro policies are expected to return to normal in the second half. New special bonds issued by local governments and special bonds for pandemic fighting are expected to squeeze out urban construction investment bonds to some extent, Wang said. On the other hand, RMB 1.2 trillion of urban construction investment bonds are expected to come due in the second half, so local governments will face significant refinancing pressure, he said.