The Authoritative Interpretation of the Ministry of Finance Why the New Limit of Special Debt was Delivered in advance

 The Authoritative Interpretation of the Ministry of Finance Why the New Limit of Special Debt was Delivered in advance

Faced with the increasing downward pressure of the economy, the executive meeting of the State Council held on September 4 upgraded the Six Steady policy, released positive signals to the outside world, and further intensified counter-cyclical policies, including a series of arrangements around local government special debt.

On September 6, the Ministry of Finance held a conference on Speeding up the Issuance and Use of Local Government Special Bonds. Xu Hongcai, Vice Minister of Finance, and Wang Kebing, Inspector of Budget Department of the Ministry of Finance, explained the background and specific arrangements of the policy.

Xu Hongcai repeatedly referred to physical workload, urging all localities to form physical workload as soon as possible, other eligible projects can form physical workload if they are well prepared and short-term, and they can also be supported. Forming physical workload as soon as possible is an important aspect of the precise implementation of special debt.

The conference also sent a clear signal that coordination among finance, development and reform, finance and other sectors will be further strengthened. The development and reform departments provide project demand lists, and the financial departments absorb qualified projects. The provincial governments shall approve and confirm them, and link up the bond issuance and project financing with financial units.

Active Action: Further Expanding Investment

Xu Hongcai responded to the questions of the 21st century economic reporters and introduced the background of the introduction of the special debt policy. In the first half of the year, Chinas economy continued to be generally stable, stable and progressive. At present, the external environment is becoming more complex and severe, and the downward pressure of domestic economy is increasing. To this end, the State Council requires all regional departments to strengthen their sense of urgency and take the initiative in accordance with the arrangements of the Central Committee of the Party and the State Council, put the work of Six Stabilities in a more prominent position, focus on doing their own work well, make good use of counter-cyclical adjustment policy tools, and sort out key questions in key areas on the basis of implementing the policies already promulgated. Exact measures should be taken.

Accelerating the issuance and use of special bonds and reaching the 2020 quota in advance is one of the manifestations of active fiscal policy and precise policy implementation.

For local special bonds in 2019, we should focus on making up for shortcomings, benefiting the peoples livelihood, increasing momentum and further expanding effective investment. In this years quota, local government special bonds should be fully issued by the end of September and fully allocated to projects by the end of October, so as to urge local governments to form physical workload as soon as possible.

In accordance with the authorization of the Standing Committee of the National Peoples Congress, the new quota of special bonds for next year will be issued ahead of schedule in accordance with the regulations, and all preparatory work will be done to ensure that effective investment can be used early next year, to promote effective investment, to support the shortage board and to expand domestic demand. Xu Hongcai said.

While releasing positive signals, policies should also keep the bottom line. The Ministry of Finance reiterated that local governments should insist on the central governments failure to rescue and who should be responsible for borrowing.

Wang Kebing pointed out that focusing on eligibility and compliance, adhere to the project eligibility and compliance. In order to strengthen the project reserve, we must make preparations in the early stage of the project, carry out various approval procedures, and optimize projects with obvious economic and social benefits, which the masses expect to do sooner or later. We must not rush to the top, turnips do not wash mud quickly, so as to ensure the actual effect of the project construction.

Take risk prevention and control as the bottom line, clear the direction of project investment. Special bonds must be used for profitable government investment projects. The scale of financing should be balanced with project income. Local governments should focus on projects that need to be invested early and late, and infrastructure projects that need to be invested to make up for shortcomings and weaknesses. Priority should be given to areas with good use of special bond issuance, areas with good financial resources and large borrowing space, and areas with high local debt risk should be less or less arranged. Wang Kebing said.

Expanding scope: leveraging more social funds

In addition to reaching the 2020 quota ahead of time, special bonds can be used to further expand the project area of capital, which will further enhance the driving role of bond funds.

Allowing special debt to be used as project capital to release a clear signal of stable infrastructure construction is an addition to the positive policy in the middle of the year. However, the policy is strictly limited to four areas, such as railways and expressways. There are not many such projects that can be applied locally.

Xu Hongcai said that the area where special bonds are used as capital has been further expanded from four existing areas to 10 areas: railways, toll roads, trunk airports, inland navigation and power hubs and ports, urban parking lots, natural gas pipelines and gas storage facilities, urban and rural power grids, water conservancy, municipal sewage and garbage treatment and water supply.

Local governments are encouraged to arrange special bonds for project capital as much as possible on the basis of meeting policy requirements and preventing and controlling risks. Taking the province as a unit, the proportion of special bond funds used for project capital in the special bond scale of the province is generally controlled at about 20%. Specifically, according to the actual situation of the project, arrangements should be made to better play the driving role of special bonds. Xu Hongcai said.

In this way, the amount of investment that can be leveraged by special debt will be further enlarged. The amount of special debt issued in advance should be controlled within 60% in 2020, calculated by the scale of 2.15 trillion special debt in 2019, which means that the maximum amount can be reduced to 1.29 trillion in advance. Twenty percent of the 129 trillion yuan can be used for project capital, which can bring about about about 200 billion yuan of project capital. This part can leverage trillion yuan of investment, together with other non-capital special bonds, which can lead to 200 billion yuan of investment. Mao Jie, a professor at the University of Foreign Economics and Business, told reporters on economic reports in the 21st century.

Expanding the scope of the use of special debt and expanding the scope of capital projects all stem from local actual needs. Xu Hongcai pointed out that the scope of the use of this special bond has been expanded, mainly because the Ministry of Finance expanded investment in the field of peoples livelihood according to the projects reported by the local authorities and the actual situation.

Precision Policy: Forming the Investment Quantity in Physics as soon as possible

Accurate policy implementation is the core orientation of this policy adjustment. The special debt policy has become more active, and has also been launched around it.

The executive meeting of the State Council made it clear that the amount of special bonds issued in advance should not be used in land reserve and real estate related fields, nor in replacement of debts and industrial projects that can be fully commercialized.

Qiao Baoyun, a professor at the Central University of Finance and Economics, told reporters on economic reports in the 21st century that the special debt quota issued in advance is to stimulate effective investment and support the expansion of domestic demand by making up shortcomings. The railway, rail transit, ecological and environmental protection projects listed are more obvious than those of land storage and real estate.

In the context of regulation and control ofno speculation in housing, local governments are also guided by this, which is only for these special debts issued in advance. In the allocation of funds for local special debt in 2020, reasonable capital needs such as local land reserve and shantytown reconstruction will still be considered. Zhou Wenyuan, chief researcher of Guotai Junan Trading and Investment Commission, told reporters of 21st century economic reports.

In the allocation of funds for approving in advance, emphasis is also laid on the formation of physical construction as soon as possible. Xu Hongcai said that according to the requirements of the Standing Meeting of the State Council and the requirement of funds follow projects, the amount of special bonds to be issued in advance is inclined to projects with complete formalities and adequate preparations for preliminary work, giving priority to areas with good issuance and utilization and areas with construction conditions this winter and next spring. The main purpose is to give full play to the investment driving role.

The head of the Budget Office of the Finance Department of Western Provinces told reporters of economic reports in the 21st century that there was a time lag between project construction and project settlement. Some projects could be started this winter, but the settlement of funds may take place until next year. Local special debt issued in 2020, and its corresponding projects may start construction in the winter of 2019.

In order to form the amount of physical investment, it is necessary to strengthen the coordination of departments. Wang Kebing said that under the leadership of the local Party committees and the government, a coordination mechanism should be established among the departments of finance, development and reform, and financial management. When the local financial departments report the demand for special bonds, the development and reform departments at the same level shall provide a list of project needs, and all the financial departments meeting the issuance conditions of special bonds shall absorb and adopt it, which shall ultimately require the approval and confirmation of the provincial government. Strengthen the communication and connection between local finance, development and reform departments and financial units, and support the issuance of special bonds and supporting project financing. The Ministry of Finance and the Development and Reform Commission are responsible for checking and verifying the special bond projects reported by the local authorities, and the financial management departments guide the financial institutions to do a good job of supporting financing.

Source: Responsible Editor of 21st Century Economic Report: Zhong Qiming_NF5619