In 2021, local debt issuance by the Communist Party of China may exceed RMB 7 trillion, a record high. Yuan Haixia, vice president of the China Chengxin International Credit Rating Institute, said this year and the next three years will see a peak in local debt repayments, and the pressure on local government debt is a cause for concern.
Bloomberg reported on March 22 that according to the budget report of the Ministry of Finance released during the two sessions of the Communist Party of China and Bloomberg data, the Chinese government will add 4.47 trillion yuan of local debt quota this year, and 2.67 trillion yuan of bonds will mature, after refinancing, the scale of local debt issuance this year will exceed 7.1 trillion yuan, an increase of about 11% from last year.
Market participants mostly believe that the upcoming supply peak, will make the bond market yield (yield) face the risk of higher.
Wang Yifeng, chief financial industry analyst at Everbright Securities, wrote in a newly released report, “The net financing scale of government bonds in April to May is about 1.34 trillion, with greater supply pressure.”
According to Wang Yifeng’s observation, the supply tide of local bonds iterated with interbank certificates of deposit maturity pressure and other factors resonate, the liquidity environment at that Time is not optimistic.
Standard Chartered analyst Jie Liu also expects the monthly net issuance of government bonds to increase to about 680 billion yuan from a monthly average of about 169 billion yuan in the first two months of the year from March to June, and the strong momentum of debt issuance is expected to continue until the end of the third quarter.
According to Xing Zhaopeng, senior China strategist at ANZ, the huge amount of local bond issuance is definitely negative for the bond market. This year, there is limited room for lowering quotas and interest rates, and banks are under more pressure to undertake than last year. Issuers are eager to speed up the pace of issuance considering that interest rates may go up later, and with the peak supply in the second quarter overlaid with corporate tax payments and higher PPI, “the 10-year treasury bond colonial rate may soar to 3.6%.”
On Jan. 7, Yuan Haixia, vice president of the Research Institute of China Chengxin International Credit Rating Co., Ltd. said at a macroeconomic seminar that China’s debt size is around 336 trillion in 2021, and the macro leverage ratio will climb slightly to a level of 296%. Looking at the maturity of credit debt in 2020, there will be about 8 trillion credit debt maturity in 2021. 2021 is a full year, especially the second half of the year, and the pressure to repay is high.
Yuan Haixia said that the debt pressure of local governments in the Communist Party of China is a cause for concern. This year and the next three years, local government bonds and debts will see a peak of repayment, with each year’s debt service scale exceeding 2.5 trillion, and the maturity scale in 2023 will exceed 3.5 trillion.
According to Yuan Haixia, relative to 2020, the financing strength and credit environment will be marginally tightened in 2021, the overall credit risk will further rise and be at a high level, and structural differentiation will further intensify. For the current level of Chinese debt and the stock size of the bond market, risk release will be the norm.
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