Local government special-purpose bonds (hereinafter referred to as "special bonds") are an important policy tool for stabilizing growth. To better leverage the effect of this fund exceeding 3 trillion yuan, there will be changes in the management of special bonds.

Some special bond project review powers may be delegated.

On October 8th, Liu Sushe, Deputy Director of the National Development and Reform Commission (NDRC), stated at a press conference held by the State Council Information Office that in response to some prominent issues in the current issuance, use, and management of local government special-purpose bonds, the NDRC and the Ministry of Finance are urgently studying the rational expansion of the scope of support for local government special bonds, appropriately expanding the fields, scales, and proportions used as capital, studying the pilot of project review autonomy, implementing a "green channel" for the continuation of projects, and will soon introduce new measures to optimize and improve the management of local government special-purpose bonds.

Wen Lai Cheng, a professor at Central University of Finance and Economics, told Yicai that currently, local special bond projects need to be reviewed and approved by the NDRC and the Ministry of Finance before they can be issued. The two departments are studying the pilot of project review autonomy, and in the future, they may delegate the review power of some special bond projects with smaller amounts and easier risk control by local governments to the provincial-level development and reform and financial departments. This would facilitate the improvement of project review efficiency.

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"For some ongoing projects that require special bond financing across fiscal years, granting a green channel means that when these projects issue special bonds later, the review process can be relaxed and accelerated due to the presence of project implementation plans, financial evaluation reports, and legal opinions from the early stages," said Wen Lai Cheng.

Affected by the increasing economic downward pressure, in order to stabilize investment and growth, the scale of local government special bond issuance has been rising year by year in recent years. In 2024, the new limit for special bonds reached 3.9 trillion yuan, an increase of 100 billion yuan compared to 2023. Special bonds have become an important means to implement proactive fiscal policies and are one of the most direct and effective policy tools for the government to stimulate investment.

Due to the weak growth of local fiscal revenue in recent years, major project construction has become more dependent on financing through special bonds and other means, so localities are actively applying for special bond projects. However, in practice, some localities have not done a solid job in the preliminary preparation of special bond project applications, with incomplete relevant procedures; some have over-reported income and underestimated costs, thereby packaging projects to cover interest and principal. This has also led to the idleness of some special bond project funds in recent years, with project returns not meeting expectations, or even no returns, hiding debt repayment risks and increasing local expenditure pressure.

To address this, the Ministry of Finance and the NDRC have increased the review intensity of special bond projects in recent years, hoping to control the first pass of project screening, improve the quality of special bond projects, and thereby improve the efficiency of fund use.

Looking at the review process of special bond projects, relevant departments at the grassroots county and municipal government levels select specific projects according to the requirements of special bond projects and complete preliminary preparations. After being reviewed and approved by local finance and development and reform departments, the projects are included in the "Local Government Bond Project Library" and the "Major Construction Project Library". Provincial development and reform and financial departments will conduct preliminary reviews of the special bond projects reported by localities, and after the preliminary review is passed, they will be reported to the relevant "project libraries" of the NDRC and the Ministry of Finance.

The scope of support for special bonds is continuously expanding.In accordance with the division of responsibilities for special bond work, the National Development and Reform Commission (NDRC) scrutinizes the investment areas and preliminary work of special bond projects reported by localities, and after preliminary screening, pushes the information to the Ministry of Finance. The Ministry of Finance focuses on strengthening the review and control of projects from aspects such as the maturity of special bond projects, the balance of financing and benefits, and the compliance of fund use, and ultimately determines and issues the provincial special bond quotas.

The number of special bond projects declared by localities is quite large. For example, in April of this year, after screening, the NDRC and the Ministry of Finance had approximately 380,000 special bond projects for 2024 and a special bond demand of about 5.9 trillion yuan. This funding demand is far higher than this year's new special bond quota of 3.9 trillion yuan.

Several fiscal and tax experts previously told Yicai that the review of special bond projects this year is stricter, which is also one of the reasons for the slow progress of special bond issuance this year.

For instance, public data shows that in the first half of this year, the new special bond quota issued by local governments nationwide was only 1.5 trillion yuan, with an issuance progress of less than 40%, significantly lower than the average of the same period in the past five years. In April and July, the central government twice called for accelerating the progress of special bond issuance and use. With the明显的 acceleration of special bond issuance in August and September this year, the new special bond issuance in the first three quarters was about 3.6 trillion yuan, with a bond issuance progress reaching 90%, and the remaining about 0.3 trillion yuan of special bonds were basically completed in October.

Hu Hengsong, Deputy General Manager of Finda Securities, told Yicai that the NDRC's proposal to study and carry out pilot projects for project review autonomy means that in some regions or projects, local governments may gain greater autonomy to determine the project review process and standards. This decentralization of power can increase the flexibility of local governments in declaring and issuing local bond projects, enabling them to adjust project proposals in a timely manner according to the latest national policies and to review projects more quickly and effectively according to local actual conditions.

Hu Hengsong believes that implementing a "green channel" for the continuation of projects will further optimize the approval process for key construction projects, accelerate project progress, ensure the successful completion of projects, prevent the emergence of "half-finished projects", improve the efficiency of local government special bond fund use, and ensure that funds can be effectively implemented.

In addition, the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" in July this year proposed to reasonably expand the scope of support for local government special bonds, and appropriately expand the fields, scale, and proportion used as capital. The Ministry of Finance and the NDRC are currently studying and deploying this work urgently.

"Overall, the purpose of these new measures for special bonds under study is to improve the efficiency of local governments in project approval and fund use, accelerate project construction progress, promote the formation of more physical work volume, and thus promote economic growth and social development," said Hu Hengsong.

In recent years, the scope of support for special bonds has been continuously expanding. For example, this year, the scope of support for special bonds has increased to include independent new energy storage, comprehensive treatment of water environment in key basins, and other fields.

At the above meeting, Liu Sushe stated that the next step is to study and include urban renewal projects with certain benefits, such as the renovation of old neighborhoods (old industrial areas), in the scope of support for local government special bonds. Zheng Shanjie, Director of the NDRC, introduced measures to promote the stabilization and recovery of the real estate market at the meeting, stating that special bonds and other support can be used to activate idle land stocks.In recent years, the scope of using special-purpose bonds as project capital has been gradually expanding. However, according to data compiled by the Minsheng Bank Research Institute, the proportion of new special-purpose bond funds used as project capital in the first three quarters was 9.8%, which is lower than the maximum allowed ratio of 25%. This reflects that the policy of using special-purpose bonds as project capital has not been fully utilized. Therefore, the scope and proportion of special-purpose bonds used as capital will be further expanded in the next step.