Balancing Economic Stability and Risk Prevention in New SPB Policies (AI Translation)
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文｜财新周刊 程思炜
By Caixin Weekly's Cheng Siwei
伴随2015年新《预算法》实施而正式推出、为地方政府建设融资“开前门”的地方政府专项债券，迎来十年来最大一次制度调整。
Accompanying the implementation of the new Budget Law in 2015, local government special bonds, intended as a “front door” for local government construction financing, are experiencing their largest institutional adjustment in a decade.
国务院办公厅2024年12月25日公开《关于优化完善地方政府专项债券管理机制的意见》（下称《意见》），在继续拓宽专项债资金投向、扩大专项债作项目资本金范围和比例的同时，提出若干突破性举措，包括在北京等10个省份及河北雄安新区开展项目审核权下放到省级的“自审自发”试点；允许地方安排财政补助、调度其他项目收入等偿还专项债本息等。《意见》还重申加快专项债券发行使用，严禁用于发放工资、养老金及支付单位运行经费、债务利息等既定要求。
On December 25, 2024, the General Office of the State Council released the "Opinions on Optimizing and Refining the Management Mechanism of Local Government Special Bonds" (hereinafter referred to as "Opinions"). While continuing to broaden the scope of special bond funding and expanding the range and ratio of project capital for special bonds, the document introduces several breakthrough measures. These include conducting pilot projects in Beijing and 10 other provinces, as well as the Xiong'an New Area in Hebei Province, to transfer project approval rights to the provincial level under a "self-assessment and self-issuance" model. The measures also allow local governments to arrange financial subsidies and use other project revenues to repay the principal and interest of special bonds. The "Opinions" reiterate the acceleration of special bond issuance and usage and strictly prohibit their use for paying wages, pensions, operating expenses of units, and interest on debts.
上述调整的问题导向鲜明。近年来，各级审计频繁查出专项债资金闲置、挪用，“钱等项目”或“项目等钱”现象普遍存在，债券资金使用效率不高。而多地曾被曝光的专项债资金挪用，一定程度上正是地方财力不足、包括专项债付息在内的刚性支出压力加大的缩影，更凸显优化规范专项债管理机制的迫切。
The recent adjustments reflect a clear problem-oriented approach. In recent years, various levels of audits have frequently uncovered issues such as the idling and misappropriation of special bond funds, with the phenomena of "money waiting for projects" or "projects waiting for money" being commonplace, leading to low efficiency in the use of bond funds. The misappropriation of special bond funds, which has been exposed in many regions, to some extent highlights the inadequate local financial resources and the growing pressure of rigid expenditures, including the interest payments on special bonds, underscoring the urgency for optimizing and regulating special bond management mechanisms.
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- The 2024 adjustments allow pilot projects in 11 provinces to expedite special bond issuance by delegating approval to provincial levels, increasing local autonomy in project management and fund usage efficiency.
- Special bonds face rising repayment risks, with interest expenditures reaching RMB 736 billion in 2023, highlighted by declining real estate revenues impacting repayment capabilities and prompting expanded repayment sources.
- Recent policies promote special bonds as fiscal tools for economic stabilization, expanding project capital uses and emphasizing efficient fund allocation, particularly for regions with strong economic and project management capabilities.
**Summary of the Article:**
The implementation of China's new Budget Law in 2015 marked a significant institutional adjustment for local government special bonds, which serve as a primary method for financing local construction projects. In December 2024, the State Council's General Office released "Opinions on Optimizing and Refining the Management Mechanism of Local Government Special Bonds." The document proposed expanding the scope of special bond funding and included pilot programs in Beijing and 10 other provinces to allow provincial-level control over project assessments and bond issuance. The new measures permit local governments to use various revenue streams to repay these bonds, emphasizing the need for efficient bond usage without misallocating funds for operational expenses, wages, or pensions[para. 1][para. 2].
A persistent issue with special bonds has been their inefficient usage and misappropriation, highlighted in audits that revealed idle funds and inappropriate allocations for unrelated expenditures. For example, in Shandong and Beijing, substantial amounts were misallocated to other projects or expenses, underscoring the need for better financial management[para. 3]. Additionally, the rapid growth in debt and declining infrastructure project returns have increased repayment risks. The significant decrease in government fund income from land sales further strains repayment capacities, as seen in the dwindling municipal fund revenues and inflated project returns[para. 4].
Economist Liu Yu suggests empowering regional authorities by transferring approval rights from the central government to the provincial level. This autonomy could streamline the bond issuance process, ensuring timely fund allocation and improving project efficiency. By adjusting fund application scopes through a negative list—outlining prohibited uses—the policy grants local governments greater project diversity and flexibility. Such adjustments are expected to mitigate interest payment pressures and bolster repayment capabilities[para. 5][para. 8][para. 10][para. 12].
Further suggested adjustments include expanding the use of special bonds as project capital, increasing the upper limit for capital use, and enabling broader repayment sources. The new policy aims to integrate special bonds into the government budget, requiring balanced project revenues to cover debts. The reform aligns with China's fiscal management strategy, distinguishing special bonds from U.S. municipal revenue bonds by positioning them as tools for stabilizing economic fluctuations[para. 5][para. 9][para. 15][para. 16].
The decentralization of project approval processes introduces challenges for provincial governments, requiring improved debt management, accountability, and comprehensive governance systems to ensure proper project execution and debt repayment. The pilot areas are expected to enhance project approval efficiency and bond issuance, creating room for smoother economic adjustments through strategic allocation of special bond resources[para. 13][para. 14][para. 17].
A review of the special bond system reveals significant mismatches between allocated funds and actual project needs, with many bonds left idle due to procedural inefficiencies and lack of suitable projects. Despite attempts to enhance project preparation enthusiasm, tight fiscal controls and loan scrutiny discourage local governments from realizing special bond project's potential. Nonetheless, regulatory updates, such as enabling provincial-level fund management and outcome-focused borrowing, are designed to stimulate local economies through effectively targeted financial interventions and investments across various sectors like infrastructure, ecological protection, and public welfare, highlighting the continued emphasis on economic stabilization[para. 11][para. 18][para. 19][para. 21].
The State Council's new measures should alleviate repayment risks through strategic control of resources and ensuring efficient use of special bonds for priority projects, as reflected in the document's wider scope of funds and streamlined processes for bond allocation. As provincial governments grapple with tighter auditing standards and performance expectations, the new system offers a refined approach to aligning project objectives with fiscal realities, enhancing the special bond system's efficacy as a tool for economic growth and stability[para. 20][para. 22].
**Note: The numbers in brackets [ ] relate to the paragraphs from the original document from which the summary information is derived.**
- WEST CHINA SECURITIES
华西证券 - West China Securities' chief economist, Liu Yu, suggests that decentralizing the review process for special local government bonds to the provincial level could improve the efficiency of issuance and usage. This change may lead to an earlier issuance pace for 2025 compared to the clear delay observed in 2024. Such adjustments could benefit the infrastructure sector by forming actual workloads sooner. The bond's usage managed via a negative list enhances the local government's autonomy and project diversity.
- Beijing Zhonghui Law Firm
北京市忠慧律师事务所 - The article mentions Beijing Zhonghui Law Firm, specifically its director, An Xinhua. He provides insights into the new policies on local government special bonds, highlighting the increased autonomy granted to local governments and the associated responsibilities, such as debt resolution and performance issues.
- Fitch Ratings
惠誉评级 - Fitch Ratings' Public Finance Analyst, Zhao Yuqing, measured that the proportion of special bond interest expenditure to government fund expenditure reached 7.7% in 2023. This is still below the 10% threshold set by China's State Council's emergency debt risk response plan.
- GF Securities
粤开证券 - The article does not mention GF Securities. It primarily discusses the adjustments to China's local government special bonds, focusing on changes in management mechanisms, the expansion of funding sources, and potential impacts on local government responsibilities and economic functions.
- 2015：
- Implementation of the new Budget Law and the introduction of local government special bonds as a financing mechanism for local government construction.
- In 2020：
- Shandong province issued 145.3 billion yuan in special bonds, with significant misappropriation noticed.
- By 2021：
- Audit in Beijing revealed inappropriate allocation of bond funds amounting to 234 million yuan.
- In 2021：
- Henan Provincial Audit Office disclosed that 3.391 billion yuan of special bond funds were misappropriated.
- In 2023：
- Interest expenditures on special-purpose bonds reached RMB 736 billion.
- By the end of October 2023：
- The issuance of new special bonds was significantly lower than expected, with an acceleration seen in August and September.
- From January to October 2024：
- Interest expenditures on special-purpose bonds reached RMB 694.3 billion.
- By December 25, 2024：
- The General Office of the State Council released the 'Opinions on Optimizing and Refining the Management Mechanism of Local Government Special Bonds'.
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