Beijing beefs up municipal coffers amid slump

Staff reporter and Reuters

China issued 3.49 trillion yuan (HK$3.77 trillion) of local government bonds in the first half of the year despite the local government debt risks, as the economy stayed weak amid sluggish domestic demand and external challenges.

Among these, the additional local government bonds reached 1.83 trillion yuan, while the general bonds amounted to 332.4 billion yuan and the special bonds to 1.49 trillion yuan, according to the Ministry of Finance.

Local governments across the mainland issued over 1.9 trillion yuan of new bonds as of July 26, the ministry said yesterday, adding that more projects for new infrastructure and emerging industries will be included in the investment targets of special bonds.

After the 1 trillion yuan worth of additional treasuries issued last year, ultra-long treasury bonds involving 1 trillion yuan have been planned for issuance this year, of which 418 billion yuan has been issued.

This week, the Guangdong Province also announced a plan to issue offshore local government bonds in Hong Kong and Macau this year to raise up to 7.5 billion yuan, following the Shenzhen government's plan to borrow up to 7 billion yuan via Hong Kong.

It comes as 16 provinces saw their first-half gross domestic products fall below the full-year goal amid sluggish domestic demand. Even Guangdong Province's grew 3.9 percent only, behind the goal of a 5 percent rise this year.

The weakness extended to July. China's manufacturing activity slipped to a five-month low last month as factories grappled with falling new orders and low prices, as the purchasing managers' index contracted for a third month, easing to 49.4 from 49.5 in June, below the 50-mark separating growth from contraction.

The official non-manufacturing PMI, which includes services and construction, slowed to 50.2 in July from 50.5 a month earlier.

Moreover, China's central government has transferred about 8.99 trillion yuan to local governments in the first half, or 88 percent of the earlier budget, to boost revenues together with other measures.

The ministry will also facilitate consumption tax reforms and enable local governments to retain more of the levies step by step.

Also, the ministry will urge local governments in the issuance and use of special bonds and the transferred funds from the central budget and will issue ultra-long treasury bonds to raise about 300 billion yuan to support equipment upgrades, in line with Tuesday's Politburo meeting.

In the first half of this year, China's national expenses grew 2 percent year-on-year to 13.6 trillion yuan, while revenue dipped 2.8 percent to 11.6 trillion yuan, leading to a deficit of 2 trillion yuan.

The ministry reiterated yesterday that the departments of the party and the government must get used to the tight budget.