Since September, with the introduction of various stimulus policies, China's policymakers made significant efforts, and the growth rate of broad fiscal expenditure and deficit has significantly accelerated. On 8th November,  the Chinese Ministry of Finance announced a 5-year debt swap plan for local government’s shadow debts, with a total amount of RMB10 trillion. Among that, the newly added amount of bonds scheduled before the end of 2024 is RMB2.8 trillion, of which RMB800 billion will come from the already issued RMB3.9 trillion LG special project bond this year, and the remaining RMB2 trillion will be financed through the issuance of new LG refinancing bonds. In 2025 and 2026, the Ministry of Finance will provide an annual debt swap to LG shadow debts of RMB2.8 trillion per year. In 2027 and 2028, that number will be RMB800 billion  per year. The total debt refinancing plan in 5 years at RMB10 is shown in Figure 7 below.

Source: Bloomberg, CEIC, Wind

With the announcement of the Ministry of Finance's LG shadow debt refinancing plan, we have seen that since November, the speed of LG bond issuance has once again accelerated. According to our statistics, the net issuance of the two types of bonds mentioned above has exceeded RMB2 trillion in November, which means that the fundings available for 2024’s LG shadow debt swap plan have been basically in place (see Figure 8).

The newly added RMB2 trillion in LG debt swap fundings will have a significant easing effect on the tight financial situation of local governments at the end of this year and the beginning of next year.

In addition, the increase in bond funds has increased the amount of social financing and  increased the total amount of funds in society.

*Source: Straits Financial Chief Economist Commentary - December 2024