This year, there has been a noticeable decline in the scale of local governments "borrowing" money temporarily.

Amid the current significant fiscal revenue and expenditure contradictions, the main public and legal way for local governments to "borrow" money is through the issuance of local government bonds. Public data shows that in the first four months of this year, a total of 1.9178 trillion yuan in local government bonds were issued nationwide, a decrease of about 31% compared to the same period in 2023, and slightly lower than the same period in 2022. However, looking at the scale of local debt issuance in the first four months in recent years, this year is still at a high level, only lower than the same period in 2023 and 2022.

Local government bonds are divided into new bonds and refinancing bonds according to their use. The funds from the former are mainly used for major projects such as infrastructure construction, while the funds from the latter are used to repay the principal of maturing local government bonds or existing debts, that is, "borrowing new to repay old."

Public data shows that in the first four months, 942 billion yuan in refinancing bonds were issued nationwide, a year-on-year increase of 13%. Meanwhile, 975.8 billion yuan in new local government bonds were issued nationwide, a year-on-year decrease of 50%, of which 722.4 billion yuan were new special bonds, a year-on-year decrease of about 56%.

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It is not difficult to find that the scale of local government bond issuance in the first four months of this year is lower than that of the same period last year, mainly because the issuance progress of new special bonds is slower than that of the same period. According to this year's budget report, the planned issuance scale of new special bonds this year is about 3.9 trillion yuan, an increase of 100 billion yuan compared to last year. The proportion of new special bonds issued in the first four months accounts for about 19% of the annual planned issuance scale, which is significantly slower than the same period last year.

Why is the issuance progress of new special bonds slower than that of the same period this year?

Recently, Wang Jianfan, the director of the Budget Department of the Ministry of Finance, explained at a press conference of the State Council Information Office that the scale of new special bond issuance in the first quarter is smaller than in previous years. On the one hand, it is because in previous years, in response to the impact of the epidemic and other special factors, the scale of issuance at the beginning of the year was increased. On the other hand, it is also related to the demand for project construction funds, construction conditions in winter and spring, bond market interest rates, and other factors. At the same time, we have done a lot of work in improving the quality of special bond projects and strengthening the preparation of projects in the early stage. Overall, the annual issuance scale is still in line with expectations.

Previously, Luo Zhiheng, the chief economist of Yuekai Securities, told Yicai that there are two factors for the slow issuance of new special bonds. On the one hand, it is affected by the additional issuance of national bonds in the fourth quarter of last year, and the fiscal funds available are relatively abundant, so the necessity and urgency of issuing new bonds are not high; on the other hand, it is related to the strict control of low-efficiency government investment in provinces with greater debt pressure.

However, the Central Political Bureau meeting at the end of April pointed out that the current economic recovery still faces many challenges, and it is necessary to take the lead in effectively implementing the macro policies that have been determined. One of the measures is to accelerate the issuance and use of special bonds to maintain the necessary strength of fiscal expenditure.

Special bonds have become an important tool for implementing proactive fiscal policies and are one of the most direct and effective policy tools for the government to stimulate investment. Experts generally believe that the issuance of special bonds will significantly accelerate in the future. According to past experience, it is generally completed by October to form physical work volume as soon as possible to stabilize the economy.In the review of special-purpose bonds, the National Development and Reform Commission recently stated that in conjunction with the Ministry of Finance, it has completed the selection of local government special-purpose bond projects for 2024. Approximately 38,000 special-purpose bond projects were selected, with a demand for special-purpose bonds of around 5.9 trillion yuan for 2024, laying a solid project foundation for the issuance and use of 3.9 trillion yuan in special-purpose bonds this year.

Wen Bin, Chief Economist at Minsheng Bank, anticipates that in the next phase, the focus of local debt issuance will be somewhat delayed. He explained that, on one hand, the timing for the application and review of this year's special-purpose bond projects is later compared to previous years, and the project selection work has just been preliminarily completed. On the other hand, the Ministry of Finance has indicated that it will initiate the issuance process in a timely manner based on the allocation of ultra-long-term special treasury bond projects. Currently, the most likely issuance window is still in the second quarter. Therefore, the focus of local debt issuance may be postponed to the third quarter to avoid the concentrated supply of government bonds putting significant pressure on the funding side, thereby increasing the financing costs of government bonds. This can also create a good situation for the rolling continuation of funds with last year's additional issuance of treasury bonds and ultra-long-term special treasury bonds, avoiding any gaps.

Wang Jianfan stated at a recent press conference held by the State Council Information Office that the next step will involve the Ministry of Finance working with relevant departments to guide localities in reasonably controlling the pace of special-purpose bond issuance, optimizing the rhythm and intensity of government investment, directing the financial needs of major projects, improving the performance of bond fund usage, and leveraging the catalytic and amplifying effects of government investment. This will consolidate and enhance the positive trend of economic recovery, and continuously promote the economy to achieve substantial and effective improvement in quality and reasonable growth in quantity.

Data from the Minsheng Bank Research Institute shows that the efficiency of new special-purpose bond usage has increased in the first four months of this year. In the new special-purpose bonds issued for project construction during the first four months, the proportion invested in infrastructure reached 71.1%, which is 8 percentage points higher than the full year of last year. The proportion of new special-purpose bonds used as project capital in the first four months is about 10%, an increase of 1.9 percentage points from the full year of last year.

Data from the Ministry of Finance shows that in the first quarter of this year, the national government fund budget expenditure was approximately 1.8 trillion yuan, a year-on-year decrease of 15.5%. The low land transfer income and slow progress in the issuance of special-purpose bonds are important reasons for the decline in expenditure.