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China Urges Local Governments to Spend More to Counter Slump

·2 min read

(Bloomberg) -- China’s State Council called on local governments to sell more special bonds this year in order to boost investment amid a slowdown in the economy.

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Premier Li Keqiang chaired a meeting of the State Council, China’s cabinet, on Wednesday, urging local governments to have more ongoing construction of projects at the beginning of next year, the official Xinhua News Agency reported. It also called on them to make better use of proceeds from special bonds to expand domestic demand.

Regional governments should step up project preparation, facilitate the launch of projects that are mature, and make reasonable requests for special bond quotas next year, according to Xinhua. The authorities will study the possibility of granting some bond quotas in advance of next year, according to the report, as they did in the recent two years.

Premier Li reiterated the economy is facing “new downward pressure” and cross-cyclical policy needs to be strengthened. Economists have pared back their growth forecasts for the fourth quarter to a median of 3.1%, while some say the economy’s pace next year could be slowest since 1990, excluding last year’s pandemic impact.

Sales of local government special bonds have been particularly slow in the first ten months of this year, partly due to a lack of quality projects. Previously, the Ministry of Finance urged local authorities to finish issuing all the bonds within this year’s quota by November.

Local governments have achieved positive results in managing debt and reducing so-called hidden debt in recent years, with the government’s overall debt-to-gross domestic product ratio trending lower, the State Council meeting said. Authorities need to step up auditing and monitoring of proceeds raised from the bond sales, according to the meeting.

Fiscal policy will play a bigger role in ensuring the economy has a stable start in 2022, China Securities Journal, which is published by Xinhua, reported Thursday. While local governments’ income from land sales might fall, they should issue more special bonds to help fund investment projects, the paper cited Zhu Jianfeng, an economist at Citic Securities Co. Ltd. as saying.

Regional authorities may issue more than 4 trillion yuan ($630 billion) worth of special bonds next year, up from the 3.65 trillion yuan budgeted for this year, the Securities Times reported Wednesday, citing another analyst, Cheng Qiang from Citic.

(Updates with more details of State Council meeting in the sixth paragraph)

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