China’s Muni-Bond Market Brought Back To Life

This Bystander noted last year that moves were afoot to develop a municipal bond market as a way to put the financing of provincial and local governments on a more transparent footing, and to wean it from the off-balance sheet financing via captive investment vehicles that local authorities have resorted to get round restrictions on official borrowings. As of June, 2010, these captive investment vehicles accounted for 7.7 trillion yuan of local government borrowings (more than three-quarters of the total), and had become some of the most riskiest parts of local government finances in the eyes of the finance ministry.

Now, Zhejiang and Guangdong provinces and the municipalities of Shanghai and Shenzen have been given permission by the ministry to issue three- and five-year bonds on a trial basis. It is the first such direct muni-bond issuance sanctioned in 17 years.  Collectively the quartet are expected to be capped at 20 billion-30 billion yuan first time round. (Update: Shanghai, 7.1 billion yuan; Guangdong, 6.9 billion yuan; Zhejiang, 6.7 billion; and Shenzhen 2.2 billion yuan.) That would be one-tenth of the annual issuance now made by the finance ministry on behalf of local governments to help meet funding shortfalls.

Though the bonds will issued by the four authorities, they will be closely supervised by the ministry. The proceeds of the sales will be kept in a special account at the ministry, which will oversee the payment of interest and principal, and, in effect, guarantee the bonds. The ministry will also have a big say in what the money raised can be used for. Zhejiang is expected to be first out of the gate, raising funds for infrastructure projects. If all goes well, other provincial and city governments will be allowed to follow suit.

Beijing banned local governments from selling their own bonds–and from running deficits, come to that– in 1994 when it became concerned local authorities were running up huge debts they wouldn’t be able to pay. Now policymakers are concerned that local authorities have again borrowed too heavily in the wake of China’s post-2008 global financial crisis stimulus, and that in a slowing economy and cooling property market they will again struggle to repay their loans. Worse, that could trigger a banking crisis.

While the immediate priority is to clean up and deflate the local government debt bubble before it can go damagingly pop, the development of a local-government bond market is in Bejing’s long-term plan for developing its domestic financial markets. Beijing is moving cautiously, however. It remains wary of giving provinces more control over their own development, at the expense of central control. The initial quartet are trustees, so to speak, and financially sound enough to test the waters without too great a risk of mishap.

Beijing will still have to guarantee the debt of many provinces for sometime to come, and there is a real risk that some of the weaker provinces won’t able to maintain their debt service. As Liu Mingkang, head of the banking regulator, noted earlier this week, there are serious concerns about the levels of local government debt. “We cannot deny that local government financing platforms have not been managed well,” he said.

A quick glance west to Greece or east to California reveals the trouble fiscally wayward and heavily indebted national and local governments can get into. Having prided itself on avoiding the worst excesses of the prelude to the recent global financial crisis, Beijing doesn’t want to go there in its aftermath.

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4 Comments

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4 responses to “China’s Muni-Bond Market Brought Back To Life

  1. vokoyo

    當我們看中國的外交,卻發現她很多時會在違背自身價值觀和利益的情況下,向各國妥協。可見中國外交的失敗。

    中共所實行的睦鄰政策,可說是徹底的失敗。中共現在的領導人奉行鄧小平那套所謂的「韜光養晦」政策。但其實,這只是一種逃避挑戰的鴕鳥政策。當今中國所面臨的惡劣國際環境,則決定了這種鴕鳥政策必然失敗。

    在這種鴕鳥政策主導下,中國外交不僅畏首畏尾,更胸無大志,既沒有系統的外交戰略,也沒有長遠的外交目標。這種頭痛醫頭、腳痛醫腳式的外交政策,直接導致中國外交在面對各種挑釁時束手無策,盡顯軟弱之態,面對大好機遇時,也因毫無戰略準備而無所作為。

    對朝鮮對印度對日本甚至是越南,中國都是畏首畏尾,一昧退讓,實行韜光養晦。本來,鄧小平的韜光養晦,是指平時積蓄力量,關鍵時刻果斷出手,是一種積極進取的外交思維。但現在,卻成了一種鴕鳥政策,令人無奈。

    其實,按照中國現在的實力,根本不用如此讓步,中共對東南亞國家,對日本,甚至是越南朝鮮,都讓得太多。完全顯示不到大國風範,畏首畏尾的外交政策,只會令中國人蒙羞!

    至於對印度和越南的外交處理手法,中共簡直令人覺得恥辱。情況就好像當年清政府打贏法國,但仍然賠償法國一樣。令人覺得是絕大的恥辱。

    中國在和日本,越南,俄羅斯,印度等周遍強國的政治經濟往來中,沒有佔到多少便宜,也沒有讓這些列強放棄對中國崛起的偏見和敵視,自身利益不斷被侵占,不能不說中國的外交政策有很大缺陷,這是中國國家佈局計劃和外交政策慘敗的最佳體現。

    中國常常想成為一等一的大國,但他的外交卻事事以懦弱的方式勉強了事,實在不能給人任何強國的風範。

  2. Pingback: China Said Set For Big Boost To Muni-Bond Market | China Bystander

  3. Pingback: China Set To Boost Muni-Bonds | Market Bystander

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