China allows initial issue of local toll road bonds

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China's local governments will be allowed to issue toll road bonds from 2017 to finance toll road construction, according to a statement by the Ministry of Finance and the Ministry of Transport on Wednesday.

Why toll road bonds are issued

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In the past, local governments either invited private capital to participate on the build-operate-transfer model, or relied on bank loans to pay back with the revenue from toll collections, an official said.

As China called off the financing function of various local transport financing vehicles in 2014, local government bonds have become the only bond-financing channel for new road projects, he said.

The issuance of these special-purpose bonds will expand the financing channels for road projects and standardize the financing behaviors of local governments, the official said.

How should the funds be used

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Priority will be given to national highway projects and government toll way projects supporting the Belt and Road Initiative, the integrated development of the Beijing-Tianjin-Hebei region and the Yangtze River Economic Zone.

"The fund should not be misappropriated for projects other than toll road construction, current expenditures or road maintenance expenditures," the statement stressed.

As of the end of 2016, China had 171,100 kilometers of toll roads, accounting for 3.6 percent of all roads.

The aggregate investment in toll road construction came to 7.59 trillion yuan (1.12 trillion US dollars) and the outstanding debts stood at 4.86 billion yuan (716.8 million US dollars), according to transport ministry statistics.

It is said the longest duration of local toll road bonds can be 15 years, while five years in principle is standard for local land reserve bonds.

This year's total quota for local toll road bonds is reported to be 73 billion yuan (10.8 billion US dollars).

(With input from China Daily)