China’s Slow Bond Offerings to Dent Infra Investment More Than Initially Expected

Source: Bloomberg

The slow rollout of China’s bonds to local governments will hit the country’s infrastructure program more than anticipated, coupled with curbs on the property market.

• Local government special bonds will have reached 1.8 trillion yuan or $277 billion by the end of the month, accounting for 48% or less than half of the 2021 quota.
• This is slower than the 75% sold at the same time last year when spending was stepped up to drive growth amid the COVID-19 pandemic.
• According to analysts, this would then delay infrastructure investment, which grows three to six months after bonds are issued.
• Bonds issued after September will then have minimal impact on infrastructure spending this year.
• Infrastructure spending plunged by 10% in July, the worst performance since February 2020. Spending was down 1.6% on a two-year basis.
• Slow spending is also likely due to a perceived lack of willpower from local governments, lack of quality projects, and stringent reviews.
• Local governments also have less money due to restrictions on land sales and pressures to cut debt.
• Government units are now looking at saving some of the 2021 quotas for December to finance projects for 2021.