Bond Sale Program Expanded

[Randy W]

I'm not sure what this represents, but it sounds like there's something beneath the surface . . .

 

Bond sale program expanded: report

In late 2011, China started a program to allow Shanghai, Zhejiang, Guangdong and Shenzhen to sell bonds directly, within a budget plan approved by the State Council and with credit backing from the central government.

Jiangsu and Shandong were added to the list in 2013.

"Expanding the pilot program is also in line with the country's latest urbanization plan," Liu said.

A plan released in March by the State Council said that local governments would be allowed to raise money through direct selling of bonds to fund the local urbanization process.

. . .

As local governments are normally not allowed to raise money by issuing bonds, they use local government financing vehicles to borrow massively from less regulated off-balance-sheet sources, which has led to swelling debts and greater risk of default.

. . .

"Cities with high [property] inventories will see further declines in home prices. The land market will cool and land prices will soften. Some developers and local governments will face greater financial strains," Barclays Capital told the Global Times in a research note on Monday.

Local authorities rely heavily on revenue from land sales to repay their debts, which stood at 17.9 trillion yuan by the end of June 2013, up 67 percent from 2010, official data showed.

Part of the problem is that local governments have to incur new debts in order to repay old ones, which further inflates the existing debt, Han said.