This is the fourth article in the 2020 Economic Review, which is about the most important factor (none other than) that will support the Chinese economy in 2020 – government debt. It is important to highlight that the data for this article comes from the National Bureau of Statistics, the Ministry of Finance and the official website of the People’s Bank of China.
First, the fiscal revenue and expenditure data for 2010-2020 are given. Note the two colored columns: the total fiscal deficit and the revenue and expenditure gap ratio.
The table above gives the full-caliber fiscal revenue and expenditure, where the public budget revenue and expenditure data are mainly on taxation, while the government fund revenue and expenditure are mainly on land concessions. in 2020, China’s full-caliber fiscal revenue is 27.64 trillion, basically unchanged from 27.49 trillion in 2019, with a slight increase of 0.5%. However, there is more growth on the expenditure side, $36.36 trillion, up 10.1% from $33.02 trillion in 2019. The result of flat revenues and a big increase in spending is, of course, a dramatic amplification of the fiscal deficit, which reaches $8.72 trillion in 2020, up 57.7% from $5.53 trillion in 2019. In terms of the gap between revenues and expenditures, it reaches an all-Time high of 31.6%.
To fill the gap of the $8.72 trillion fiscal deficit, the government responded, of course, only by issuing debt. So the issuance of government bonds and local bonds in 2020 reached an astronomical size: 7.02 trillion yuan in government bonds, an increase of 75.0%; 6.44 trillion yuan in local bonds, an increase of 47.7%. Next, let’s look at the data of government bonds and local bonds one by one. First, the national debt.
The borrowing rate of China’s national debt fell to a trough of 36.1% in 2015 and has been rising year by year since then, with the borrowing rate of national debt rising to 77.2% in 2019, which means that of the 4.01 trillion national debt issued that year, 3.10 trillion was used to repay the old debt and only 912.1 billion was added to the national debt balance that year. The balance of the national debt. In fact, this is already a sign that the issuance of national debt is reaching its limit, with more than three-quarters of the new debt going to pay off the old debt.
But the situation in 2020 is unique, as the Epidemic has caused economic development to be suspended from time to time. The “Great China” can not play many cards, can only rely on government credit expansion, fiscal borrowing for investment, in the case of the credit limit has been reached, but also to continue to expand. No expansion, the people do not have to eat rice, enterprises are not open, the production of steel and cement do not know who to sell, all point to the government to renovate the road teeth, municipal networks have to smash and repave more than eight times, that is, the new era of “Food for work”. In this context, the issuance of national debt reached a record 7.02 trillion, and the borrowing rate was reduced to 38.1%.
Regarding the forecast for 2021, let’s be conservative, not counting the growth, and consider that the national debt will continue to issue 7 trillion. Of course, the fact is that there must be growth, how the increase in the national debt must maintain the scale of more than 4 trillion, for the national investment in major projects; borrowing and repayment volume will certainly exceed 3 trillion. But we’ll go by the 7 trillion to anticipate it.
—- the dividing line of credit —-
Then look at the local debt. I have given data for both local government bonds and municipal bonds. Although urban investment bonds are corporate bonds in terms of rules and are issued by local government investment platform companies, in essence, it is actually a debt that relies on government credit endorsement. The following table also requires attention to the borrowing and repayment rate.
To illustrate, the issuance of local government bonds in China was extremely chaotic before 2016, and the Ministry of Finance spent a lot of effort to rectify it in 2016, issuing 6.06 trillion local government bonds (of which 4.89 trillion were replacement bonds) to replace all kinds of odd local government liabilities with a maturity of 5-7 years in 2017 and 2018. replacement, essentially replacing all sorts of implicit local government liabilities with explicit bonds. In fact, this means that since 2016, local government liabilities actually consist of two main parts: government bonds and municipal bonds, which are the two main parts.
Let’s start with the government bond component. Folks, now that 2020 is behind us, 2021 is upon us. We look back at that big local government bond vacancy in 2016, with an average maturity of 5-7 years. This means that 2020 is actually okay, the bonds are generally not yet due, so the borrowing and repayment rate is only 29.4%, but starting in 2021, we actually enter a concentrated debt repayment period of 4.89 trillion bonds. This means that more replacement bonds must be issued in order to repay the old with the new.
In 2020, 6.44 trillion local government bonds were issued. 2021 will see a second wave of local bond issuance with the arrival of nearly half a trillion bonds, starting at 8 trillion in a minute. After all, in addition to the 5 trillion borrowed to repay the old amount, how also have to borrow at least 3 trillion of new money for investment in infrastructure, which can not be avoided. If the local government dares to borrow less money, a bunch of enterprises on the spot will dare to die to you see.
As for the part of the urban investment debt, generally 3-5 years, shorter term, and therefore more dependent on borrowing new to repay the old. 2017-2019 urban investment debt borrowing new to repay the old rate are floating between 60-70%. 2020 urban investment debt issued 4.38 trillion, an increase of 35.4% compared to 2019, incidentally pulled down the borrowing new to repay the old rate, but also did not drop much, there are still 55.4% .
According to statistics, the size of China’s urban investment bonds due in 2021 is about 3.1 trillion, all have to refer to the borrowing of new for old mode to be able to afford; plus urban investment enterprises in any case must be newly borrowed 2 trillion to maintain the local government’s investment capacity, together the local government must borrow 5 trillion in the field of urban investment bonds in 2021. This number can not be less in any case.
OK, this means that local governments must borrow 8 trillion + 5 trillion = 13 trillion in 2021. Plus, there are 7 trillion treasury bonds expected to be issued, together, the state and local governments, in 2021, must borrow 20 trillion dollars to maintain the continued stable operation of the Chinese economy.
What is the concept of 20 trillion? As of the end of 2020, China’s total deposits in the residential and corporate sectors combined were $162 trillion, with $20 trillion representing about 12.3%. That is, every national and every business must put aside at least 10% of their deposits to support the government in the economy.
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