No Sign of China’s Bond Quota as Government Looks to Curb Debt

(Bloomberg) -- China’s government has been slow to announce plans on special local bond sales this year, another sign that it’s seeking to rein in debt.

Unlike in the past two years, Beijing has so far given no indication of how much local governments can borrow from the bond market in 2021. The most recent signal from Finance Minister Liu Kun is that the government will set a reasonable quota, though he didn’t say when sales would start.

In 2019, the Ministry of Finance was so keen to get local governments to borrow and spend on infrastructure that they were allowed to start selling bonds in January, months before the program was officially approved by parliament in March. In November of that year, with the economy looking wobbly because of the U.S. trade war, the government started pushing local governments to sell 2020’s bonds.

“Last year, the Chinese authorities were implementing an unconventional fiscal policy but this year the coronavirus is under control and the economic recovery is in good shape,” said Ming Ming, the head of fixed-income research at Citic Securities Co. in Beijing. “The government has more confidence it can exit from unconventional stimulus policy and return to the normal track.”

China’s focus in 2021 is to stabilize debt levels by gradually withdrawing some of the stimulus pumped into the economy last year during the coronavirus pandemic.

Much of the borrowing by local governments is meant to be spent on infrastructure, such as new train lines or toll roads, as well as the 5G technology network. However, there were concerns last year the money wasn’t being spent on projects that could generate enough cash to repay the debt.

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“The government is yet to grant an early quota on local government special bonds this year partly because the funds were not well used last year,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. “What is in short supply is not money but good projects, as the use of the proceeds from the bond issuance requires profit to be earned and cash flow.”

The quota for new local government special bonds last year was 3.75 trillion yuan ($581 billion), and most economists expect that to fall in 2021. The official quota will likely be announced at the National People’s Congress meeting scheduled for March.