Further innovations

He Qiang, an official responsible for local bond issuances and debt at the Sichuan Provincial Finance Department, said that there have been innovations in the application of special local government bonds. Such new developments have worked effectively in catalyzing larger amounts of social investment.

"For example, for some water conservation projects, financing innovation modules used funds released from the special local government bonds as capital to catalyze social and private investments for the projects," he said. "Since 2018, a total of 6.8 billion yuan released from special local government bonds have been used as primary capital for projects on rural vitalization and have catalyzed a total of 40 billion yuan in social investments."

Li at the Beijing National Accounting Institute underlined the role that special local government bonds have played in energizing social capital and completing projects that benefit livelihoods, especially when social investment momentum was relatively in the doldrums during the COVID-19 pandemic.

"Since 2020, due to the severe disruptions caused by COVID-19, many key projects at local levels that were previously planned outfaced the risk of shutting down because of lack of funding. Accelerating the issuance and allocation of special local government bonds has played a role in the counter-cyclical fiscal policy adjustment and ensured the stable operations of key infrastructure projects, generating real economic activity," she said.

Li explained that in recent years, fiscal revenue and expenditures at local government levels have remained in a tight balance. The COVID-19 pandemic has brought a heavier blow to them and hampered their capacity to support key projects that bear on both local livelihoods and the region's stable economic performance.

"In recent years, the constant earlier issuance and allocation of special local bonds have alleviated spending pressures for local governments in a timely manner and successfully ensured the early opening of infrastructure projects every year, generating real economic activity," she said. "In addition, by precisely formulating the areas allowed using the funds of these special local bonds, it has ensured that the funds are put in place where the country's high-quality development drive needs them the most, such as rural vitalization."

Promoting restructuring

The Government Work Report released during this year's two sessions — the top legislative and political advisory meetings — in March has made it clear that the government will work to promote restructuring while reining in an incremental buildup of hidden debt. When attending a news conference in early March, Liu Kun, China's finance minister, said that while the imbalance between fiscal revenue and spending remains acute, there won't be any phase-out in fiscal spending on people's livelihoods.

"As a transparent, compliant fiscal financing tool of good quality, special local government bonds have been an integral vehicle in China's fiscal financing and the role they have played during the past three years is worth recognizing," said Robin Xing, chief China economist with Morgan Stanley.