THE eastern city of Ningbo will become China’s first city to sell bonds to retail investors, as China broadens financing channels for local governments whose fiscal conditions are under pressure from a slowing economy. The government of Ningbo said it plans to issue up to 840 million yuan (US$125 million) worth of three-year bonds Friday, including 300 million yuan to be distributed via bank counters, targeting individuals and small institutions. This would be the first time that local government bonds have been sold outside China’s interbank market and stock exchanges, underscoring China’s desire to expand the investor base beyond institutional investors. The move comes at a time when many local governments are facing increased budgetary pressure amid a slowing economy and the Central Government is planning more tax cuts. Finance Minister Liu Kun said this month that some regions have had difficulties paying salaries, as well as maintaining operations and social security. Agricultural Bank of China, one of the underwriters for the Ningbo bonds, said in an advertisement on its website that the government bonds will bring “new investment opportunities” to individual investors. The lender said it is answering the call from the Central Government and actively preparing for retail distribution so as to help lower financing costs for local governments. In addition to Ningbo, five other regional, or local governments, including Zhejiang, Sichuan, Shaanxi, Shandong and Beijing, will also issue bonds via banks’ counters this month in a pilot program, according to Agricultural Bank of China. China is encouraging local governments to rely on the bond market for funding, while restricting less transparent channels such as local government financing vehicles (LGFVs) in an effort to prevent a credit woe. The finance ministry said earlier this month that it will grant local governments a quota of 2.15 trillion yuan for special bond issuance this year, sharply higher than the 1.35-trillion-yuan quota it granted in 2018. Special bonds are issued for purposes such as highway projects and shantytown redevelopment. The Ningbo bonds, to be issued March 22 by tender, are special bonds used to fund the purchase of land reserves, according to the prospectus, posted on the website of the Interbank market.(SD-Agencies) |