China nudges Local Governments to sell bonds faster

China is intensifying its policy support for the economy and urging local governments to hasten the sale of bonds to fund critical infrastructure projects. Regulators have instructed local authorities to utilise this year’s quota of special purpose bonds by the end of next month, with the proceeds to be put to use by the end of October.

The move comes as China faces economic challenges, and authorities are now prioritising policy implementation following several pledges to revive the economy. The central bank has also called for lenders to cut mortgage rates to stimulate the struggling property market.

Despite the emphasis on policy support, the recent push may not result in a significant increase in actual spending. Economists note that there is often a lag of about a month between local government debt sales and actual investment. Additionally, investment returns on infrastructure projects have been declining for the past decade, making it challenging to find viable projects.

The September deadline for selling special local bonds implies a substantial issuance of these bonds over the next couple of months. Chinese provinces have already seen their borrowing costs rise in recent days amid a broader bond market retreat, indicating potential financial stress in some regions.

While the government is taking measures to revive the property market, some local lenders have started offering temporary preferential rates on existing mortgages or renegotiating home loans in response to guidance from the People’s Bank of China.

The recent policy pledges by the Communist Party’s Politburo and subsequent support measures have led to a rally in Chinese stocks. Investors are optimistic about regulators acting swiftly on these promises, although economists warn that significant stimulus announcements have not been made yet.

As China navigates the path to economic recovery, authorities are carefully balancing policy support with financial stability. The focus on infrastructure spending and targeted support measures for the property and consumer sectors aims to boost growth while avoiding excessive debt buildup. Nevertheless, the impact of these measures may take time to materialise, and economists caution against expecting immediate results.

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