Caixin Weekly | Special Bonds for Land Reserves Begin to Roll Out — Can They Inject Funds Into the Market? (AI Translation)

财新周刊｜土储专项债陆续启动 能否为市场注入资金？

[para. 1] In 2025, Guangdong province in China issued the first domestic special bonds specifically for acquiring idle land. These bonds, named "25 Guangdong Bond 09" and "25 Guangdong Bond 10," were set at an issuance rate of 1.77% and began trading on the Shenzhen Stock Exchange in March. The total scale of these special bonds was 30.7 billion yuan, aimed at acquiring 84 idle land plots across 19 cities in Guangdong, with 300 million yuan allocated for new land reserves.

[para. 2] The bonds were well-received in the market, with high bid-to-cover ratios indicating strong demand. According to Wind data, the average yields for similar treasury and local government bonds were around 1.72% to 1.83%.

[para. 3] The issuance came after the Ministry of Natural Resources and the Ministry of Finance issued guidelines to support land reserves using special local government bonds. This push led to accelerated issuance of such bonds in multiple provinces, with significant funding allocated for land reserves.

[para. 4] Special-purpose bonds for land reserves are financial tools for local governments to manage land acquisition, development, and reserve management, addressing intertemporal financing demands. Earlier rounds of such bonds were issued between 2017 and 2019 during a real estate boom but were halted until a restart in October 2024, with a focus on revitalizing existing assets.

[para. 5] Forecasts indicate that special bonds for land reserves could reach a national scale between 600 billion to 1.2 trillion yuan in 2025, highlighting their significance in local fiscal strategies. Guangdong's projects mainly involve state-owned urban investment firms, which use proceeds from land sales to repay the bonds, supporting fiscal stability during real estate market adjustments.

[para. 6] Special bonds for land reserves mirror local government debt reforms. Strict regulatory frameworks have been set since 2016 to manage local government borrowings, using bonds issued by provincial governments in compliance with state debt limits. Earlier rounds of bond issuance significantly boosted finance for land reserves and real estate sector revenue.

[para. 7] The risk of rapid bond issuance for land reserves includes potential misuse of reserved land as collateral, which is prohibited by the Ministry of Natural Resources. The issuance was halted in 2019 due to concerns about local government debt risks, but restarted as real estate market conditions necessitated government intervention in idle land acquisitions.

[para. 8] The current policies reflect changes in the real estate market's demand-supply dynamics, urging local governments to reclaim unused land using special bonds. This strategy creates financial flexibility and revives stagnant land parcels, laying the groundwork for broader market reforms.

[para. 9] Urban investment companies, state-owned entities, and qualified local government financing vehicles (LGFVs) are primarily involved in acquiring idle land using special bonds. Their past prepared them to maneuver within the broader context of economic volatilities impacting the land market.

[para. 11] The implementation of these bonds assists local governments in resolving implicit debts accumulated outside statutory debt limits. With special bonds offering lower interest rates compared to previous liabilities, local authorities can mitigate fiscal stress and interest expenses, translating into savings.

[para. 14] The restart of land reserve special bonds reflects a strategic alignment with fiscal policy goals aimed at stabilizing the real estate market, optimally utilizing available resources for economic support. This policy is particularly relevant to provinces with substantial idle lands and active real estate markets.

[para. 15] Although these bonds prioritize economically significant provinces, they may potentially divert resources from other project financing needs. Yet, they remain instrumental in easing liquidity constraints and fiscal pressures on local governments and realty sectors, ensuring economic resilience amid market corrections.