Jun 11, 2019 10:56 PM

Looser Bond Restrictions Could Trigger Infrastructure Investment Splurge

An overpass under construction on Saturday in Nanjing, East China's Jiangsu province. Photo: VCG
An overpass under construction on Saturday in Nanjing, East China's Jiangsu province. Photo: VCG

China’s loosening of restrictions on special-purpose bonds has the potential to boost infrastructure investment by hundreds of billions of yuan, but at the cost of heavier debt burdens for local governments, analysts said Tuesday.

The central government released a new policy document on Monday that will allow local governments to use the proceeds from special-purpose bond issuance as project capital for certain infrastructure investments. It is a change that aims to bolster economic growth as domestic demand weakens and trade tensions with the U.S. intensify.

Special-purpose bonds must be used for projects that are proven to make certain returns on investment, and are supposed to be repaid with returns from the specific projects they are invest in, rather than fiscal revenue. Previously, China prohibited local governments from using any borrowed money as capital in infrastructure projects in an effort to keep a lid on local government debt.

“We believe these new measures could make it easier for projects to meet the requirement of the minimum capital ratio and allow firms to leverage more loans from banks,” Goldman Sachs analysts said in a note Tuesday. In September 2015, Beijing lowered (link in Chinese) the required minimum ratio of capital funds to total investment funds for most infrastructure projects to 20%.

The new policy can set off a large amount of investment, analysts said. If all of the proceeds from the special-purpose bonds issued after the policy change are used as capital, they could boost infrastructure investment by 870 billion yuan ($125.9 billion) and potentially push up this year’s overall infrastructure investment growth by 4.9 percentage points, analysts at Guosheng Securities Co. Ltd. said in a note Tuesday.

Analysts from Sinolink Securities Co. Ltd. came up with a lower estimate. If used as capital funds, the proceeds from the special-purpose bonds issued after the policy release could at best increase new infrastructure investment by 604 billion yuan and boost growth by 3.4 percentage points, they said in a note.

The new measure, however, might also increase the leverage ratio for individual projects, ANZ Research economists said in a note on Tuesday.

The policy’s effectiveness will also be influenced by whether local governments undertake enough infrastructure projects that meet the requirements, said Zhang Yu, an analyst at Guizhou Huachuang Securities Broker Co. Ltd.

In the first five months this year, local governments issued nearly 1.5 trillion yuan in bonds, including 859.8 billion yuan of special-purpose bonds, or nearly 40% of the 2.15 trillion yuan quota approved earlier this year, according to official data (link in Chinese).

Issuances of special-purpose bonds are expected to accelerate to more than 300 billion yuan a month on average over the next three to four months, ANZ Research economists predicted.

Han Wei contributed to this report.

Contact reporter Timmy Shen (

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code