Curbs on debt issues by local government financing vehicles are being eased to boost funding for infrastructure investment that will offset slowing economic growth.
The National Development and Reform Commission, which regulates State-owned enterprise bond issues, on May 27 said that it had lowered the debt-to-asset ratio for LGFVs that need to provide guarantees to 65 percent. It cut the ratios for AA+ and AAA rated LGFVs to 70 percent and 75 percent, respectively.
The move is expected to spur a new wave of bond issues by LGFVs to meet a huge financing shortfall in infrastructure investment.
The regulator also lifted the debt-to-local GDP ratio for cities and counties. Enterprise bonds and medium-term notes issued by these jurisdictions can now be equal to a maximum of 12 percent of local GDP, compared with 8 percent previously.
Guo Tianyong, head of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics in Beijing, said the changes will help local governments solve the urgent problem of getting the financing needed for infrastructure investment.
“Maintaining stable growth is the most pressing task. There is still ample room to expand investment in China’s vast central and western regions, though the changes are also likely to raise default risks facing some local governments,” said Guo.
The NDRC listed a number of favored areas for bond issues, such as the seven key sectors: Oil and gas pipelines, health and senior-care services, environmental protection, clean energy, food and water projects, transportation, and support services for oil, gas and mining.
Infrastructure investment has been designated as an economic driver. But many local governments are facing financial difficulties due to declining land sale revenues and tight debt controls.
In the first four months, urban fixed-asset investment rose 12 percent year-on-year to 12 trillion yuan, down 5.3 percentage points from a year earlier, according to the National Bureau of Statistics.