Chinese bond issuances may rise in 2018, analysts say

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An anticipated budget deficit cut this year and continued tax-cutting could add fiscal pressure on China and may lead to an acceleration of bond issuance, analysts say.

The budget deficit target has been set at three percent in the past two years and has not been cut since 2012. This year's target will be proposed to the country's top legislature during the first session of the 13th National People's Congress, which will convene on Monday in Beijing. Some fiscal experts have predicted that it will be set at around 2.7 percent.

If a lower ratio is set, both the central and local governments are expected to increase fundraising by issuing bonds, said analysts.

The country plans to adopt a "proactive" fiscal policy this year that will also see a lower tax level to reduce costs for enterprises – a tone that set by the annual Central Economic Work Conference held last December.

"The growth rate of fiscal expenditure was faster than fiscal income since last year, and the country could continue to cut taxes, further exacerbating fiscal strains this year," Zhu Qing, a professor of the School of Finance at Renmin University of China, said on Thursday.

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According to the 2017 budget execution report revealed by the Ministry of Finance in late January, the total public expenditure was 20.33 trillion yuan (3.21 trillion US dollars), 896.7 billion yuan more than the budgeted level. The actual fiscal income was 17.26 trillion yuan, which was 393.7 billion yuan higher than the budget.

The over-expenditures were 2.28 times of the over-incomes, driving the actual deficit to 503 billion yuan more than the budgeted deficit, the official data showed.

"As the capital for supplementing the deficit is limited, the expended deviation between the actual and the budgeted deficits will lead to heavy pressure on fiscal balance," said Li Rong, a researcher with the Chongyang Institute for Financial Studies at Renmin University of China.

A report from the institute released on Thursday highlighted that the growth of local governments' expenditure was faster than expected.

"It should be noticed that local governments' expenditure for paying interest on debt has remarkably increased at a rate of 21.9 percent year-on-year, accounting for 3.57 percent of the local governments' total budget expenditure," the report said.

In January, treasury bonds worth 190 billion yuan were issued, up 39.71 percent from a year earlier, according to data from China Central Depository and Clearing Co Ltd.

Treasury bond issuance increased by one trillion yuan to 3.9 trillion yuan last year, while the local government bond issuance slowed to 4.4 trillion yuan from six trillion yuan in 2016, according to the People's Bank of China, the central bank.

Source(s): China Daily