Local governments have stepped up their borrowing since the start of the year. They issued RMB860bn in special bonds over the course of January and February, up from an average of RMB105bn per month during the second half of 2022. Special bonds are crucial to the economic outlook as they make up over half of new fiscal borrowing and are the main financing channel for government-funded infrastructure projects. The recent pace of issuance is roughly on par with that in early 2020 and 2022, both years in which officials were keen to quickly roll out support to a struggling economy. And it could soon ramp up further – local governments have been given Q1 issuance quotas totalling RMB2.19trn, 50% higher than last year and the maximum permitted under Chinese budget laws. Even if the Q1 quota isn't fully utilised, issuance could exceed RMB1 trillion in March. Admittedly, this pace of issuance won’t be sustained for long. Media reports suggest that the full year quota may be set at around RMB4trn, in line with actual issuance last year. But even if the full-year fiscal stance is little changed, the front-loading of borrowing should help to support the near-term economic recovery.
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