13 hours ago
- Business
- South China Morning Post
Word is bonds: China's provinces use special-purpose funds to pay debts
Hunan has become the first province in China to use the proceeds of special-purpose bonds to guarantee government payments to enterprises, with 20 billion yuan (US$2.78 billion) allocated for this year.
The inland province made the adjustment to its annual fiscal budget last month, marking the first time the bonds – typically earmarked for revenue-generating construction projects – will be used to cover government arrears.
Proceeds will be distributed based on eligible outstanding debts from existing investment projects, according to a statement from the province's department of finance issued last week. The department said the disbursements will be prioritised to help cities and counties across Hunan complete ongoing construction, clear their obligations and reduce fiscal risk.
David Wong, a lecturer at Hang Seng University in Hong Kong, called the move 'a step in the right direction,' but warned that the 20-billion-yuan sum could be 'a drop in the bucket' compared with the scale of
local government debt
'It remains unclear which arrears will be prioritised or which firms will actually receive payments,' he said. 'The more complex issue is that this is not simply a matter of 'government owing enterprises' but a complex web of entangled triangular debts.'
Criss-crossing chains of obligation make the repayment picture opaque for a number of localities, Wong said.
'In many cases, local governments have indirectly incurred debts through state-owned enterprises (SOEs), which in turn owe money to each other. Some SOEs are involved in circular guarantees and cross-debt relationships with both local governments and private companies.'
