Acceleration of special local government bonds keeps economy stable and sound in past three years

With businesses in China widely and actively rebounding since January, China's growth is speeding up from the pandemic impact felt since early 2020. Economic activity is once again up and running and the country's fiscal revenue increased in March on the back of recovering economic vigor.

Figures from the Ministry of Finance in late April show that fiscal revenue grew 5.5 percent in March after declining 1.2 percent in January-February, a strong sign of recovery after three challenging years.

Critical factors

A number of critical factors have served in this process. Among them, central fiscal funds have not only helped several localities survive the hard times, but also set up new projects that benefit local livelihoods. Figures from the Ministry of Finance showed that special bond issuance for the first three months of this year has come in at 1.36 trillion yuan ($195.6 billion), up 4.53 percent from the same period last year.

Experts said that during the past three years, China's economy maintained a stable and sound performance thanks to the consistent fiscal fund offerings, especially special-purpose bonds. This can be partly seen from the rapid growth of infrastructure investment.

Each year between 2018 and 2022, part of the quota of special local government bonds was issued and allocated several months in advance to energize investment and facilitate local infrastructure construction. The projects they've supported and sustained have helped localities perform notably despite hits from the pandemic. For instance, some 1.46 trillion yuan in the 2022 quota for local government special bonds were issued in December 2021 as an effort to help spur investment and support the economy.

Overall growth stable

Special local government bonds are a form of off-budget debt that local governments use to raise cash for a particular policy and projects approved by central finance, primarily involving infrastructure investments. Such bonds were introduced by the central government in 2015.

Li Xuhong, a professor at the Beijing National Accounting Institute, said that during the past three years, fiscal funds such as special local government bonds served as a key fulcrum of macro-economic maneuvers in countering pandemic hits and keeping overall growth stable.

"First, they've worked effectively to ensure and improve people's livelihoods. Most projects invested in using special local government bonds are government-approved projects with strong public attributes and visibly serve in improving people's lives. For instance, a large number of projects to help with rural vitalization were supported by special local government bonds. In addition, these funds, particularly in recent years, have played an irreplaceable role in catalyzing investments when private investments somehow lost steam, keeping overall investment stable," Li said.

For Liu Xiaojun, deputy head of the Heqing township government in Mianyang, Sichuan province, his greatest relief last year was the completion of more than 30,000 mu (2,000 hectares) of high-standard farmland construction accumulated by the end of last year. The improvements made in the process have largely facilitated local farmers' cultivation process.

"Every year when it comes to the rice harvest season, the harvesting is quite a challenging process for local farmers. In the mountainous area, irrigation and mechanized cultivation have been difficult and time-consuming," he said. "With local farms upgraded with high-standard farmland, agricultural mechanization has been greatly improved. The efficiency of farm work, particularly during harvest season, has improved and lifted local people's incomes."

Southwest China's Sichuan province is home to 96.95 million mu of arable land as of 2022 and ranks ninth nationwide in terms of grain production. Many of the key projects supported by special local government bonds were agriculture- and rural-related. Since 2018, some 79.2 billion yuan released from special local government bonds have supported 519 key rural development projects in 21 cities in Sichuan.