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FEATURE: China grants 1st batch of $142 bln special bonds


Earlier than usual, China’s Ministry of Finance (MOF) disclosed on November 27 to grant China's local authorities a total of Yuan 1 trillion ($142.4 billion) quota for the issuance of government bonds for specific uses, which is part of efforts to stabilize the national economy in 2020, clarifying that this is just “part of the whole parcel”.
The Yuan 1 trillion new quota accounts for 47% of the Yuan 2.15 trillion bond quota for specific use for the whole 2019, and MOF requests all the local authorities to start raising funds via bond issuance “as soon as possible” so that some results can be shown at the beginning of next year in stabilizing the economy, according to the release.

The bonds quota for specific use for 2020 was released even earlier than that for 2019 with the latter announced by MOF towards the end of 2018, and the amount was also bigger than that for the first batch of Yuan 810 billion for 2019, Mysteel Global understands from the MOF’s releases.

Prior to 2018, China’s central government usually released the local government bonds quota around March after the two top political meetings were concluded in Beijing.

Impact of special bonds on infrastructure:

“We expect that some of the funding via the bonds for specific uses will go into the infrastructure, which will boost the national economy in the short term, and the overall impact may be significantly stronger than 2019, especially for the first half of 2020,” an analyst from a Shanghai-based futures company commented.

For 2019, more than 70% of funding from the first batch of the government bonds for specific use has been injected for land resource reservation and shanty towns upgrading, and the actual funding in the infrastructure construction, thus, was not high, but it may not be the case for 2020, according to the analyst.

In early September 2019, the State Council, China’s top economic governing body, clearly banned the funding from the new bonds for 2020 for specific use from being used in the sectors such as land resources reservation, property, debt pay-offs or industrial projects for commercial purposes, he explained.

Beijing’s other efforts to stimulate economy via infrastructure

Also on November 27, the State Council also approved to lower the minimum capital requirement for the construction of an infrastructure projects to 20% from the original 25% for port, coastal and inland water transport projects, while the requirement for airport projects will remain at 25% and that for other infrastructure projects will also stay at 20% in general though the local authorities will be having a room of five percentage points adjustment for certain projects with conditions.

An analyst from Fujian, Southeast China, applauded all the latest moves by Beijing, predicting that local governments may be more encouraged to inject the funds collected from the government bonds for specific use to infrastructure construction, as the bar of the capital requirement has been lowered to kick off such projects.

He, however, remained cautious when projecting the actual impact of such bonds on the infrastructure construction, as the actual result will very much depend on how costly an infrastructure project is and how long it will take for the local authority to execute those infrastructure projects in the pipelines.

Stimuli to boost steel consumption?
All the subtle stimulus efforts, nevertheless, should be good news to the domestic steel consumption and a boost to the domestic steel market sentiment at least for the first half of 2020, the Fujian analyst commented, though a Beijing-based steel analyst doubted it.

“In principle, investments in infrastructure construction may help to support the national economic growth, but in reality, this may not lead to a lot more steel consumption in the next year,” he said.

Many infrastructure projects, indeed, are using a lot more of other construction materials such as cement than steel, a Beijing-based macro economist once commented.

Over January-October, the Chinese local authorities issued a total of Yuan 3.03 trillion new government bonds, among which Yuan 2.13 trillion was for specific purpose, and by the end of the October, debts of Chinese local authorities totalled Yuan 21.4 trillion, or within Beijing’s requirement, MOF’s latest data showed.

On November 23, Li Xinchuang, vice chairman of the China Iron & Steel Association, shared his prediction at a steel forum in China that China’s finished steel consumption may grow 5.3% on year to 870 million tonnes, according to the media report, as China’s investments in the infrastructure and property market have posted higher growths though the country’s auto sales and shipbuilding slowed down, Mysteel understands.

Written by Victoria Zou, zyongjia@mysteel.com
Edited by Hongmei Li, li.hongmei@mysteel.com