Local governments get more flexibility over SPBs
Beijing has granted local governments greater flexibility in allocating funds raised through special-purpose bonds (SPBs).
Under new rules issued by the State Council on December 25, local authorities can use SPBs to fund any project, provided it's not on Beijing's "negative list" of restricted areas.
- Previously, SPBs could only be used to fund 11 types of major infrastructure projects.
ICYDK: SPBs are local governments’ primary source of funding to stimulate growth.
- Each year, the finance ministry (MoF) assigns an SPB quota to local authorities, mostly to fund infrastructure construction.
Beijing's negative list includes:
- Projects that offer no financial returns
- Initiatives that can be effectively handled by private enterprises
- Construction of government office buildings
- Real estate ventures, except for affordable housing or land reserve projects
The new rules confirm previous reports that 10 provincial governments, including Beijing, Shanghai, and Guangdong, as well as the Xiong’an New Area in Hebei, can independently review and approve local SPB projects.
- Previously, all provinces needed to submit project details to the MoF and the macro planner (NDRC) for approval.
Get smart: In recent years, a key challenge for local authorities, particularly in less developed regions, has been identifying financially viable, shovel-ready projects for SPBs.
- Greater project flexibility should make it easier for local governments to drive growth in 2025.
Our take: After three decades of rapid infrastructure development, some local authorities may still struggle to identify viable projects.
- The risk is that greater flexibility could lead to more waste and bad debt.