Nation to front-load some of 2024 special-purpose bonds

China will front-load part of local government special-purpose bonds scheduled for next year while appropriately expanding the usage of such bonds, to ensure financing of local governments, the Ministry of Finance said on Friday.

Experts said the move coincides with mixed economic indicators that sparked calls for more fiscal stimulus to shore up economic recovery. Accelerated issuance of such bonds is set to expand government expenditure, which is expected to bolster economic growth eventually, they said.

In line with arrangements made by the State Council, China's Cabinet, the ministry will front-load the incremental special-purpose bond quota of 2024. The ministry did not indicate any target figure for front-loading.

In March, the Government Work Report proposed 3.8 trillion yuan ($525 billion) of local government special-purpose bonds for this year.

For local government bonds, including local government special-purpose bonds, up to 60 percent of the existing year's incremental bond issuance can be front-loaded for next year as part of the next year's quota, as per existing regulations.

"We will strengthen efforts to make better use of the special-purpose bonds to drive up investment and keep the upward economic recovery momentum," the Finance Ministry said in a statement.

Wen Laicheng, a professor at the Central University of Finance and Economics, said he expects the front-loaded portion of the 2024 special-purpose bonds will exceed at least 1 trillion yuan.

Zhao Yuqing, senior director of Asia-Pacific International Public Finance Ratings at Fitch Ratings, said she expects the front-loaded special-purpose bonds from the quota for 2024 may be up to 2.28 trillion yuan.

At the same time, it will strengthen management of government bonds, especially that of special-purpose bonds, to appropriately extend areas for which the bonds could be used to raise funds or as project capital, and secure funding for key projects, the ministry said.

"The issuance of some of the front-loaded special-purpose bonds (for 2024) may be completed by this year-end," said Wen.

"Investment in the private sector is somehow tepid so far this year, and such changes are expected to help drive up private investment."

Since the beginning of this year, the ministry has expedited the special-purpose bond issuance. During the first 10 months, around 3.52 trillion yuan of the bonds were issued within the incremental quota, raising funds for construction in key areas, including municipal and industrial park infrastructure, social undertakings, transportation infrastructure, affordable housing projects, and agriculture, forestry and water conservancy projects, the ministry said.

Zhao said the issuance of special-purpose bonds has accelerated in the third quarter, with around 96 percent of the annual incremental quota for 2023 having been issued.

To stimulate private investment through projects funded via the special-purpose bonds, local governments need to be very selective about the projects concerned, Wen said.

"Currently, investment expansion mainly relies on investment from the government and State-owned enterprises. To stimulate private investment, local governments need to focus on public welfare projects and, therefore, motivate private investors to invest more on commercial projects with better profit outcomes."