(Yicai Global) July 4 -- Local governments in China issued around CNY4.4 trillion (USD607.5 billion) of bonds in the first six months of this year, mostly to repay the principal on maturing debt and to fund major infrastructure projects.

Though that represents a 17 percent decline from a year earlier, it is still relevantly high compared with recent years. New bond issuance dropped about 32 percent to CNY2.74 trillion.

Impacted by factors including slowing economic growth and the lackluster real estate and land markets, local government fiscal revenue has lacked momentum. With a peak in debt repayment, they mainly paid the principal by selling refinancing bonds, so new borrowing repays the old.

The scale of refinancing bond issuance increased quickly in the first half, Feng Qiaobin, deputy director-general of the macroeconomic research department of the State Council’s Development Research Center, told Yicai Global. That can help maintain debt sustainability, but can also weaken their issuance as a way to boost economic growth, Feng added.

Local governments sold about CNY1.62 trillion of refinancing bonds in the first half, a 32 percent jump from a year ago and equal to 37 percent of all the bonds issued. The ratios for the same periods of last year, 2021, and 2020 were 23 percent, 55 percent, and 20 percent, respectively.

New local government bonds are mainly used to fund infrastructure related to municipal engineering, industrial parks, transportation, social business, affordable housing projects, and other major projects in significant sectors such as agriculture, forestry, water conservation, and ecological and environmental protection. 

Hubei province issued CNY120 billion (USD16.6 billion) of bonds in the six months, its data showed yesterday. The proceeds were invested in building 1,045 major government projects, including a high-speed railroad, Ezhou Huahu Airport, and a smart-manufacturing industrial park in the Jiangxia district of Wuhan, the provincial capital.

According to experts, the remaining quota of around CNY1.8 trillion for new bonds will be used up this quarter. Regulations should be toughened to enhance the efficient use of such funds, they added, noting that China can also consider allowing some regions to issue refinancing bonds to replace some eligible hidden debts to mitigate local government debt risks.

Editors: Zhang Yushuo, Martin Kadiev