THE government may allow provincial governments to issue more bonds for infrastructure investment, Bloomberg News quoted sources as saying yesterday. It would be a move that would boost government stimulus.

Policymakers may raise the annual quota for so-called special bonds from the current level of 2.15 trillion yuan (US$305 billion), according to the sources. The amount of the increase hasn’t been decided yet, one of the sources said.

One source said the plan was mentioned at a recent meeting of the State Council while another said the final decision probably still needs to be approved by the National People’s Congress.

The move shows that policymakers deem the current level of stimulus insufficient to counter rising headwinds such as slowing investment and the trade dispute with the United States.

The quota for 2019 is already higher than the previous year, and the government loosened the restrictions over how the money could be used in June. Economists have raised questions over whether the money is actually being used effectively.

Morgan Stanley estimates that extra special bond quota worth 0.75 to 1 percentage point of gross domestic product could be added. That adds to the reform to the People’s Bank of China rate system beginning this week.

“These measures are defensive in nature and may not fully offset the growth drags amid trade uncertainties,” Morgan Stanley chief China economist Robin Xing wrote in a note.

Local governments have been told to finish sales of the existing quota by the end of September. Officials had sold nearly 1.4 trillion yuan worth of special bonds in the first six months of 2019, or 65 percent of the full-year quota, according to data from the Ministry of Finance.(SD-Agencies)