(Yicai) Aug. 6 -- Local governments in China issued around CNY4.2 trillion (USD589.1 billion) of bonds in the first seven months of this year, down 16 percent from a year earlier, mainly due to fewer new special bonds.

The headline figure comprised CNY2.2 trillion in new bonds, CNY1.8 trillion in new special bonds, a 29 percent slump, with new general bonds making up the rest, Yicai calculated from open market data. That means about CNY2 trillion was raised to repay maturing bonds or other debt. 

Special bonds are issued to raise funds for specific major revenue-generating projects, which are repaid from corresponding government funds or the special income of public welfare projects.

Infrastructure projects remain the main investment target for special bonds, maintaining a high level during the first seven months, said Wen Bin, chief economist at China Minsheng Bank. Additionally, the share of new special bonds used to finance such projects rose to 9.6 percent from 8.1 percent a year ago, meaning special bonds had a bigger role to play in attracting more private investment, he added.

Thirty-four percent of the funds raised through new special bonds went on municipal and industrial park infrastructure projects and 20 percent on transport-related building projects, including railroads, toll roads, and rail transit, according to data from QYYJT, a smart platform monitoring corporate risks.

About 9 percent went on renovating shanty towns, around 7.5 percent on the healthcare and hygiene sectors, and 5.4 percent on agriculture, forestry, and water conservancy, QYYJT’s figures showed.

The provinces of Henan and Shaanxi, Xinjiang Uygur Autonomous Region, and many other regions have sold CNY253.6 billion (USD35.5 billion) of 'specially-issued' newly categorized special bonds since the second half of last month, Wen pointed out. Unlike conventional new special bonds, the funds raised by these 'specially-issued' notes are used to repay existing debt rather than build projects, he said.

Wen added that while the issuance of these 'specially-issued' new special bonds helps alleviate local government debt pressure, it also lessens the boost special bonds have on infrastructure investment.

But considering the current lack of sufficient cash-generating infrastructure projects, coupled with this year's additional CNY1 trillion of ultra-long-term special treasury bonds being sold mainly for project construction, local government may go on selling these 'specially-issued' new special bonds in the coming months, Wen added.

Given that the annual quota for new bonds is about CNY3.9 trillion and CNY1.8 trillion of new special bonds were issued in the first seven months, CNY2.1 trillion yuan of new special bonds remain to be sold in the last five months of this year.

From the special bond issuance plans disclosed by various regions, plus the issuance of refinancing bonds, local governments are expected to issue around CNY2 trillion of bonds this month and next, equalling the amount a year earlier, according to Wen. The remaining quotas of about CNY1.11 trillion should be mostly issued in October as in previous years, he added.

Editors: Tang Shihua, Martin Kadiev