>The Ministry of Finance (MOF) will be stepping up its bond offerings on behalf of seven local governments this month, according to a release from China Central Depositary & Clearing Co Monday.
The MOF intends to auction 41.6 billion yuan ($6.53 billion) in bonds for local governments in central and western China, the first such auction this year, up from 33.7 billion yuan in bonds issued for the same regions last year, according to the release. A total of 20.6 billion yuan in three-year bonds will be auctioned this Friday; while the remaining bonds, with five year maturities, are set for auction on June 29.
The increase in principal to this year`s first batch of local government bonds is in accordance with plans to expand the volume of bonds scheduled to be issued this year, Zhao Xijun, deputy director of the School of Finance at Renmin University of China, told the Global Times.
The MOF said in May that it expects to auction a total of 250 billion yuan in local government bonds in 2012. Prior to this, the annual bond quota has stayed even at 200 billion yuan since China partially lifted its ban on local government debt issuances in 2009.
The government may also be widening the bond volume this year to compensate for future reductions in the scale of corporate bonds issued via local governments` financing vehicles, said Wu Hong, vice president of the China Banking Law Society. For years, such corporate financing vehicles - in which companies set up by local governments borrowed from banks or issued bonds to raise funds - have been the main source of capital for local governments, however, Beijing has recently tightened controls on these mechanisms, Wu said.
Local government bonds, in comparison, carry less risk as the principal of the bonds and the use of the funds derived through their sales have to be approved by the central government. "It is easy for local governments to accumulate a large amount of hidden and high-risk debt if they collect money through these financing vehicles, so I expect regulators may gradually replace them with local government bonds," Wu said.
