Bond markets bolster China's rural vitalization efforts
By Li Xiaoyao
China's bond markets have echoed the strategy to help consolidate and expand the country's poverty alleviation achievements in line with the "No 1 central document" for 2022 unveiled last week to accelerate rural vitalization.
The document has prioritized work on agriculture, rural areas and farmers for 19 consecutive years since 2004.
Rural vitalization bonds are innovative instruments that have entered the bond market in recent years. The funds raised by the bonds are mainly used in rural projects, such as guaranteeing grain purchases and storage, smart energy facilities in rural areas, as well as rural road construction projects.
The financial sector plays a significant role in promoting agricultural and rural development. "Financial instruments are important tools for resource allocation and can be used to allocate funds for rural vitalization projects more effectively," said Zhu Hongming, a research fellow at the Research Institute of Finance at Development Research Center of the State Council.
"Rural vitalization is a long-term task. Within the financial system, the bond market is primarily responsible for providing medium and long-term funding. So the bond markets are the most suitable for rural upliftment projects," Zhu said.
In recent years, the central government and other departments have unveiled a series of documents to promote and guide the issuance of rural vitalization bonds.
For example, the Report on the Work of the Government of 2020 has stressed that China will invest more funds raised through special bonds to promote steady improvements in rural living and working conditions.
A report released by the Bank of China Shanghai Branch shows that by the end of last year, China had issued 123 credit bonds with a scale of 89.46 billion yuan (around $14.1 billion), including 110 notes in the inter-bank market and 13 bonds on stock exchanges.
The report also shows that the issuers of rural vitalization bonds are becoming more diversified, covering various entities, such as local governments, financial institutions, state-owned enterprises, and private enterprises.
Another reason why these instruments are becoming popular is that they enjoy "green channel" clearances.
The concept of rural vitalization bonds covers a wider range, and their approval speed is faster than common bonds.
In addition, the funds raised by rural vitalization bonds can be used more flexibly, explained Fan Wei, general manager of the Fixed Income Department at Shenwan Hongyuan Securities and a researcher at Tsinghua University.
China has decided to set a five-year transition period for counties that have shaken off poverty. During this period, the country will gradually shift the policy focus from poverty alleviation toward comprehensively promoting rural vitalization. Rural vitalization bonds are expected to play an important role in supporting these efforts.
"The rural vitalization bonds provide a bridge between rural development and the capital market, allowing local enterprises to raise funds in the capital market for productive projects in agricultural and rural modernization," Zhu said.
"It is also conducive to further improving rural infrastructure, strengthening rural industrial foundations and development capacity."
Fan said his company underwrote several rural vitalization bonds last year to help the rural development. Shenwan Hongyuan Securities helped Nanjing Jiangning Tourism Group issue 1 billion yuan of rural revitalization bonds to construct modern agricultural parks, which helped increase the income of local people, Fan added.
As the Shenzhen Stock Exchange has said, financial institutions are expected to expand more market-based financing channels for enterprises and projects relating to rural vitalization and better serve the development of agriculture, rural areas and farmers.