(Yicai) March 21 -- Since China’s legislature approved last November the sale of CNY6 trillion (USD827 billion) of special refinancing bonds over three years to swap out the hidden debts of local government financing vehicles, more than half of that amount has already been raised.

Local authorities have sold CNY1.4 trillion (USD193 billion) of the bonds so far this year, bringing the total issued in less than five months to CNY3.4 trillion (USD469 billion), according to data from Qiye Yujingtong, a corporate risk-tracking platform.

The Standing Committee of the National People's Congress approved the raising of the local special bond quota to CNY6 trillion on Nov. 8, with CNY2 trillion allocated for each year from 2024 to 2026. Last year’s allocation was swiftly met before the year’s end.

At a time when some localities are facing financial strains, these rapid-fire bond sales will help them replace the liabilities held by LGFVs, thereby greatly shrinking hidden debts and alleviating the associated risks, Wen Laicheng, professor at the Central University of Finance and Economics, told Yicai.

Wen added that the move not only makes implicit debts more transparent, but also reduces the interest rate burden on local governments as a consequence of the current low borrowing costs.

Thanks to these lower rates, the CNY2 trillion raised last year could save local governments more than CNY200 billion (USD28 billion) in interest over the next five years, Finance Minister Lan Fo'an said during the Two Sessions, China’s annual key policy-setting meetings that ran from March 4 to 11 in Beijing.

After swapping out LGFV debts, local authorities should transform these entities into market-oriented state-owned enterprises in infrastructure, public utility construction, and urban operations, with no financing functions, Wen said. If mismanaged or insolvent, they should be subject to bankruptcy under company law, he added.

Editor: Martin Kadiev