THE Ministry of Finance told local governments Tuesday to speed up issuance of special bonds used to fund infrastructure projects, as the government looks to boost investment amid slowing economic activity and trade headwinds with the United States.

Local governments in China issue those bonds for special purposes such as highway projects and shanty town redevelopment.

In guidance posted on its website, the ministry said local governments should complete no less than 80 percent of their special bond issuance quota by end-September, adding that the rest should be sold mainly in October.

Local governments are allowed to issue 1.35 trillion yuan (US$196.13 billion) in special bonds this year. In the first half, more than 300 billion yuan in special bonds were issued, a pace which the Ministry of Finance called “slow.”

Special bonds differ from traditional local government bonds in that they are repaid by returns on projects instead of the government’s coffers. They also come with no government guarantees.

Historically, the main buyers of such bonds have been State-owned policy banks.

Analysts say special bonds as a source of financing infrastructure projects have not gained favor with local governments, compared with using public-private partnerships for funds, as many of these projects have low returns, or are barely profitable.

To give local governments more incentive to issue such special bonds, the Ministry of Finance said it will remove restrictions on their maturities.

Serena Zhou, Hong Kong-based China economist for Mizuho, said that move “will make these special bonds more affordable for local governments to repay.”

Special bond issuances with set quotas are viewed by the government as a way to control “invisible” local government fundraising through so-called local government financing vehicles (LGFVs).

LGFVs are entities created by local governments to skirt borrowing limits. Local governments have been forbidden to bail out troubled LGFVs.

On Monday, Xinjiang Production & Construction Corp. Liushi State-Owned Asset Management Co., an LGFV, missed an interest payment on 500 million yuan in short-term bonds.

Maturities on special bonds currently range from one year to two decades. (SD-Agencies)