Since 20 15, local debt has entered the stage of "spontaneous self-repayment".

Topic 2: the operating mechanism of local debt

Topic 3: Study on the Source and Sustainability of Local Debt.

abstract

Local government bonds in China can be subdivided into general bonds, general special bonds and special bonds for project income from the source of debt repayment funds. General bonds are included in the local finance general public budget and government deficit management, and the repayment funds are local general public budget income; Local government special bonds are included in the government fund budget and can be repaid through the corresponding government fund income and the corresponding special income of fundraising projects.

At present, the turnover and repayment of local bonds are still within the tolerable range of local finance. Under the policy guidance of "opening the front door" and "blocking the side door", the incremental expansion of local government bonds is of positive significance for optimizing the debt structure of local governments and resolving the hidden debt risks. When the Ministry of Finance approved the total debt limit and regional distribution, it fully considered the economic, financial and debt situation of each region, so as to avoid the situation that the new debt limit increased sharply and the debt service exceeded the actual expenditure capacity of local governments, and ensure the sustainability of special bond issuance. In the long run, the core of the sustainability of local debt is to build a perfect bond management mechanism, follow the iron economic laws and rules of "matching the borrowing ability with the debt paying ability", further clarify the purpose, debt paying responsibility, source and repayment method of bond funds, improve information transparency, and realize the scientific design of the system and the sustainability of debt management.

First, the source of local government bonds debt service funds

At present, local government bonds in China can be subdivided into general bonds, general special bonds and special bonds for project income according to the source of debt repayment funds.

Ordinary bonds. General bonds are included in the general public budget of local finance and government deficit management, and their repayment funds are local general public budget income. Their principal can also be repaid by issuing refinancing general bonds, but no interest is allowed. Judging from the degree of repayment guarantee, because the newly-added general bonds are limited by the proportion of government deficit, the newly-added scale and total increment are strictly controlled. At present, the budget revenue of local general public funds in various provinces, autonomous regions and municipalities is stable, so the source of repayment funds for local government general bonds is stable and the repayment guarantee is high.

Special bonds. Special bonds are included in the budget management of government funds and can be repaid with the corresponding government fund income and special income corresponding to fundraising projects. Their principal can also be repaid by issuing refinancing special bonds, but no interest is allowed. Judging from the degree of repayment guarantee, because special bonds are included in the budget management of government funds and are not limited by the proportion of government deficits, the income of government funds in various regions fluctuates under the current real estate regulation and control background. Therefore, in theory, compared with general bonds, the repayment guarantee of special bonds is relatively weak.

Special bonds can be divided into ordinary special bonds and special bonds for project income. For ordinary special bonds, from the perspective of repayment guarantee, the repayment funds of ordinary special bonds do not need to correspond to specific fundraising projects, and the repayment funds are mainly the state-owned land transfer income from government fund income, which is less affected by the subsequent business risks of fundraising projects, and the repayment guarantee degree is higher than that of special bonds with project income.

From the perspective of repayment guarantee of project income special bonds, although it is also included in the budget management of government funds, its debt repayment funds need to correspond to specific fundraising projects. Considering that the source of debt repayment funds is greatly affected by the project operation risk or uncertain factors during the project operation period, the corresponding government funds and project special income are not enough to repay the principal and interest of the project income special debt. In addition, the Ministry of Finance stipulates that if the income of the government fund corresponding to the special debt is insufficient to repay the principal and interest, it can be transferred from the corresponding public welfare project unit to make up for it. Compared with ordinary special bonds, although special bonds with project income can be paid by government funds as a whole when the project income cannot be balanced by itself, it reflects from the side that the source of debt repayment funds is relatively uncertain and the sustainability of debt repayment funds faces potential risks.

Second, the sustainability of local government bonds.

In recent years, the efforts of local governments to "make a good start" have been continuously expanded, and the amount of new bonds has been significantly expanded. In particular, the amount of new special bonds has increased rapidly, and special bonds for the benefits of shed reform, soil storage, toll roads, social undertakings, urban and rural construction, universities and other projects have been continuously innovated and issued, and the scale and proportion of special bonds have been continuously expanded. By the end of 2020, the scale of local government bonds in China was 25.49 trillion yuan, of which the balance of general bonds was 12.45 trillion, accounting for 48.84%; The balance of special bonds reached 12.92 trillion yuan, accounting for 50.68%. The principal of local government bonds can be repaid by issuing refinancing bonds, but the repayment of bond interest is a rigid expenditure. According to the information disclosure platform of local government bonds in China, the interest payment of local bonds has increased from 0.05 trillion in 20 15 to 0.76 trillion in 2020 (excluding Guizhou province), an increase of more than 14 times, and the interest payment pressure of local governments has climbed to a higher level. At the same time, due to the new local debt limit of 202 1 and will remain large in the future, and considering that the stock of local government bonds will be mainly turnover in a long period of time, the scale of interest payment is expected to continue and grow rapidly.

Judging from the repayment pressure of local debt principal, according to the calculation of China Credit, the local government bonds due in 2020 are about 2,074.69 billion yuan, and the refinancing bonds189137.7 billion yuan have been issued in the whole year. Excluding the existing debts (total scale * * * 94.939 billion yuan) issued by Jiangsu, Guangxi, Ningxia, Tianjin, Shandong, Gansu [1], Hebei, Shanxi and Guizhou in the form of non-local government bonds by the end of 2020, the scale of refinancing bonds used to repay maturing national debt also reached 17964.33. Although local governments can extend the repayment period by issuing refinancing bonds that exchange "time" for "space", this method will not reduce the overall debt balance, nor can it fundamentally alleviate the repayment pressure. In addition, according to the budget adjustment plans announced by some local governments, starting from 20 19, the Ministry of Finance not only approved the new debt limit of local governments, but also approved the limit of refinancing bonds in various places, which means that the issuance scale of new refinancing bonds will be limited. When the project income can't cover the financing cost, and the local government can't repay the old because of the restriction of refinancing bonds, it will face the pressure of repayment with fiscal revenue.

[1] The total scale is * * * 94.939 billion yuan, of which the eighth batch of Gansu provincial government bonds issued in 2020 totaled 4.667 billion yuan. According to the disclosed use of raised funds, 2.267 billion yuan is used to repay the principal of local government bonds due, and the remaining 2.4 billion yuan is used to repay the government stock debt, so it only contains 2.4 billion yuan.

Table 1:20 15 to 202 1 national new local debt limit (unit: trillion yuan)

Table 2: Interest payment and balance of national local government bonds from 2015 to 2020 (unit: trillion yuan)

Note: The interest payment in 2020 excludes Guizhou Province.

As far as the sustainability of general bonds is concerned, general bonds are included in the general public budget of local finance and government deficit management, and their repayment funds come from the income of local general public budget. In 2020, affected by the epidemic, the budget revenue of local general public * * * decreased slightly to 10.04 trillion yuan, and the interest on general debt in that year was 0.4 1 trillion yuan (excluding Guizhou Province), accounting for 4. 10% of the budget revenue of local general public * * in 2020, accounting for. On the whole, the debt service pressure of general bonds is relatively good in the medium term.

Regarding the sustainability of special bonds, local government bonds in China are running well at present. However, considering the increasing pressure of economic growth under the impact of the epidemic, the financial growth of local governments is under pressure, and the future growth rate is likely to slow down. Among them, the income of government funds may fluctuate downward due to the regulation of the real estate market and the limitation of the scale of transferable land. On the other hand, since the issuance of special bonds, the amount of new funds approved each year has shown a significant growth trend. If it continues to increase for a long time, it will face a mismatch between government funds and income.

Judging from the pressure of debt service, the interest expenditure of special bonds in 2020 is 0.35 trillion yuan (excluding Guizhou Province), and the budget expenditure of local government funds in the same period is 1 1.53 trillion yuan, accounting for about 3.04% of the national budget expenditure of local government funds. According to the Emergency Plan for Local Government Debt Risk issued by the General Office of the State Council on 20 16, if the annual general debt service expenditure of cities and counties exceeds the annual general public budget expenditure 10%, or the special debt service expenditure exceeds the annual government fund budget expenditure 10%, the financial restructuring plan must be started. Although there is still a certain distance from the upper limit of 10%, there is still room for improvement, and the recent proposal of the NPC Financial and Economic Committee to "strengthen local government debt management, improve the local government debt financing mechanism, reasonably determine the scale, term structure and regional limit of government debt, and prevent the debt risk from accumulating continuously in high-risk areas" is also conducive to ensuring that the local government debt scale is compatible with its own solvency. However, it should be noted that the average annual growth rate of the balance of special bonds from 20 18 to 2020 is about 33%, far exceeding the income growth rate of government funds. However, in 20021year, the limit of new special bonds is still very large, and the demand for rigid interest expenditure will increase every year. In addition, in recent years, the scale of special bonds for project income has obviously expanded, but there is great uncertainty in their own income, which leads to the contradiction between the sharp increase in interest expenses and the decline in fiscal revenue growth. In addition, although special bonds are not included in the deficit, once the special bond projects are affected by various factors, the government fund budget cannot fully repay the debt principal and interest, and some places consider using the general public budget for compensation for various reasons, which may lead to passive violation of the "deficit". Therefore, it is necessary to manage the issuance, use and repayment of future special bonds in a more orderly manner to avoid their long-term rapid growth and thus increase the repayment risk in the future.

To sum up, at present, the turnover and repayment of local bonds are still within the scope of local finance, and under the policy guidance of "opening the front door" and "blocking the side door", the incremental expansion of local government bonds is of positive significance for optimizing the debt structure of local governments and resolving the hidden debt risks. When approving the total debt limit and regional distribution, the Ministry of Finance will fully consider the economic, financial and debt situation of each region, avoid the situation that the new debt limit increases sharply and the debt service exceeds the actual expenditure capacity of local governments, and ensure the sustainability of local debt issuance. In the long run, the core of the sustainability of local debt is to build a perfect bond management mechanism, follow the iron economic laws and rules of "matching the borrowing ability with the debt paying ability", further clarify the purpose, debt paying responsibility, source and repayment method of bond funds, improve information transparency, and realize the scientific design of the system and the sustainability of debt management.

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