The structural risks of local bonds need to be resolved under the condition of large-scale issuance

category:Finance
 The structural risks of local bonds need to be resolved under the condition of large-scale issuance


To be resolved

Wu chaoming, vice president of Caixin Research Institute, told the securities times that the pace of issuing special bonds has moved forward and the scale of issuance has increased, mainly for the early start of infrastructure projects reserved in the early stage after the epidemic and early results, so as to better play the role of financial funds in stabilizing investment and growth.

As for the use of the new special bonds, Wang kebing, a first-class inspector of the budget department of the Ministry of finance, said at a previous press conference of the Ministry of finance that 2.24 trillion yuan of new special bonds have been issued since this year, all of which have been used in major infrastructure and livelihood services determined by the national Standing Committee. Among them, 1.86 trillion yuan, accounting for 83%, was used in transportation infrastructure, municipal and industrial parks, as well as in education, medical care, pension and other livelihood services.

At present, Chinas local government debt risk is mainly structural risk. This structural risk is highlighted in two aspects: one is the type structure and the other is the hierarchical structure. Guo Yuqing, a professor of the Department of finance, School of economics, Nankai University, said in an interview with the securities times that the type structure risk refers to the special debt repayment pressure, while the hierarchical structure risk refers to the hidden debt problem of the local government.

Guo Yuqing told the securities times that among the local government debts, the general debts take tax revenue as the repayment source and are included in the public budget management. The amount of these debts is small and there is basically no risk. The special debt takes the investment project income as the repayment source, and is included in the budget management of government funds. The volume of this part of debt is growing. However, it is difficult for local governments to mine investment projects with stable profit flow, which makes it difficult to cover the debt repayment demand in the short term, and there is liquidity risk of mismatch between investment and income flow.

Tang Chuan, an expert in PPP expert database of the Ministry of Finance and director of 360 enterprise safety investment, also told the securities times that at present, many regions and target projects in China are unable to achieve self balance of income, so that they still need to rely on replacement bonds and longer-term bonds to ease the repayment pressure in the short and medium term.

In addition, many experts said that the long-standing hidden debt problem of local governments still needs to be vigilant.

The current local government debt risk is still hidden debt. Tao Jin, a senior researcher at Suning Financial Research Institute, told the securities times that although the relationship between the debt of financing platforms and the government has been cleared up, these platforms are either state-owned enterprises or have obvious government background. Once the platform debt faces greater debt repayment pressure or even defaults, regional risks will inevitably occur.

Guo Yuqing said that after the full liberalization of local government debt financing rights, it is mainly the provincial governments that can issue local government bonds. The county-level governments of cities below the provincial level have no right to issue bonds directly and can only transfer loans from the provincial governments. However, the amount of loans that municipal and county-level governments can obtain is limited, which can only be obtained within the debt limit set by the provincial government, and strictly in accordance with the provincial level The use of the governments budget constraints. Due to the strict financial and financial discipline constraints on the transfer of explicit debts within the budget, the motivation of the municipal and county governments to accumulate hidden debts through illegal channels such as clear shares and real debts and non-standard loans is still strong, which leads to the fact that the hidden debts of local governments which have not been included in the budget supervision are still prohibited repeatedly.

Local debt risk

Not grey rhinoceros

For a long time, some voices believe that Chinas local debt is a huge and long-term grey rhinoceros, which will trigger the debt crisis sooner or later.

This view is wrong. Guo Yuqing told the securities times that Chinas local debt volume is still at a safe, controllable and internationally recognized low level relative to the economic volume. It is one-sided to look at the risk of local debt only in absolute scale. Chinas local debt risk is not the grey rhinoceros volume risk, but structural and liquidity risk.

In his view, based on the structural and liquidity characteristics of local government debt risk, China has the ability to take measures to deal with it and stick to the bottom line of no systemic risk.

Since 2015, Chinas intensive introduction of policies such as changing the way of performance evaluation, strengthening the credit constraints of creditors, steadily promoting debt replacement, and bringing local debt into the supervision of quota budget are just major risk defense strategic measures aiming at the risk characteristics of local debt.

On the other hand, the overall risk of large-scale issuance of special bonds is small. Tao Jin told the securities times that at present, the overall risk is small, and the issuance scale of local governments has been examined and approved by the Ministry of Finance and the financial committee of the peoples Congress and other departments, as well as strict budget management. However, in the case of tax reduction and fee reduction and the decrease of land transfer fee income of local governments, attention should be paid to the investment direction and utilization efficiency of local government bonds in individual regions.

PPP mode or effective mitigation

Debt risk

To resolve the risk of local debt, Guo Yuqing put forward three suggestions: first, adhere to the principle of opening the front door and blocking the back door, strictly control the financial and economic discipline, and extend the risk management to the municipal and county-level grass-roots governments through strengthening the vertical supervision of audit, budget and peoples Congress, so as to prevent local governments from deriving implicit debts through illegal channels.

Secondly, based on the potential conversion of new and old growth momentum, we should expand the local bond investment field from the demand side to the supply side. The expansion of investment field is reflected in the extension from infrastructure construction emphasized by traditional debt mode to human capital, ecological capital and scientific and technological capital. Although the return period of investment projects such as peoples livelihood security, ecological protection and new infrastructure construction has been prolonged, the issuance of local government bonds has also extended the repayment period, which can gradually solve the liquidity risk caused by maturity mismatch.

The third is to build a big data monitoring platform based on the debt flow data included in the budget supervision, and feed back the grass-roots flow data to the top-level decision-making organ, assist the decision-making department to clarify the warning signs, analyze the police situation, and guide the high-risk areas to find out the source of the alarm and control the alarm degree. We will promote the social disclosure of debt information, organize rating agencies, scientific research institutes, and think tanks of colleges and universities to carry out independent evaluation from different aspects, gather knowledge and wisdom in the government, enterprises and academia, and coordinate to maintain the security of financial operation. In addition, Tang Chuan proposed that it is a more reasonable technical strategy to fully alleviate the financial pressure and re launch the PPP mode in a large scale. Because PPP mode can help local governments to develop infrastructure and public service projects more comprehensively and efficiently, and the reasonable mode will not increase the debt of local governments. Whats more important is that the PPP model can introduce social capital into various regions, so that local governments can obtain more learning templates and have a comprehensive understanding of the current market and cutting-edge business models, so as to better realize the comprehensive development of various regions, drive the endogenous development of underdeveloped regions, and realize the optimal allocation of resources to the greatest extent. Source: Securities Times editor in charge: Guo Chenqi_ NBJ9931

The third is to build a big data monitoring platform based on the debt flow data included in the budget supervision, and feed back the grass-roots flow data to the top-level decision-making organ, assist the decision-making department to clarify the warning signs, analyze the police situation, and guide the high-risk areas to find out the source of the alarm and control the alarm degree. We will promote the social disclosure of debt information, organize rating agencies, scientific research institutes, and think tanks of colleges and universities to carry out independent evaluation from different aspects, gather knowledge and wisdom in the government, enterprises and academia, and coordinate to maintain the security of financial operation.

In addition, Tang Chuan proposed that it is a more reasonable technical strategy to fully alleviate the financial pressure and re launch the PPP mode in a large scale. Because PPP mode can help local governments to develop infrastructure and public service projects more comprehensively and efficiently, and the reasonable mode will not increase the debt of local governments. Whats more important is that the PPP model can introduce social capital into various regions, so that local governments can obtain more learning templates and have a comprehensive understanding of the current market and cutting-edge business models, so as to better realize the comprehensive development of various regions, drive the endogenous development of underdeveloped regions, and realize the optimal allocation of resources to the greatest extent.