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Treasury & Capital Markets
How China supports public finance via onshore bond market
China has introduced several new bond categories over the past few years to encourage local government-related issuers to raise financing directly through the bond market
Derrick Hong 28 May 2019

Chengdu, China - As China continues to open up its US$13 trillion onshore bond market, authorities have introduced several new bond categories over the past few years to encourage local government-related issuers to raise financing directly through the bond market. In addition to regular corporate bonds, issuers are now also able to tap the bond market by making use of different programmes.  

One innovative programme that has seen robust interest from issuers is the special bond, which is only applicable to public sector issuers. With the rise of local government financing vehicles (LGFV), the National Development and Reform Commission (NDRC) issued a guideline on the special bond that is more flexible on requirements for issuers. Issuers are able to tap the special bond market for different industries including healthcare, education and cultural development.

Similar to a project bond in the international financial market, a unique feature of the special bond is a relatively longer tenor, which can be longer than 10 years. Issuers need to inform the NDRC of specific projects. The proceeds of the project bond can be partly used to pay their outstanding debt.

Another programme to incentivize local government issuers is the project revenue bond. This programme allows issuers which are project companies to pay back the bond principal and interest using project revenue once their project is completed.

“Sichuan is one of the biggest issuers of LGFV bonds. Sichuan LGFVs are mostly smaller and the debt level of local government-related companies is manageable,” says Zhu Li, deputy director of the finance division at Sichuan Provincial Development and Reform Commission, at The Asset 13th Asia Bond Markets Summit in Chengdu, China.

In 2018, Sichuan recorded a GDP of 4 trillion yuan (US$580 million), with a growth rate of 8% YOY, and a population of over 80 million, making it China’s fourth most populous province.  

“We encourage more international investors to invest in bonds from Sichuan issuers,” says Zhu.

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