Province’s Bond Plan Signals Beijing May Be Expanding Hidden-Debt Toolkit

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The Zhengzhou Greenland Center in Henan province on Aug. 28, 2023.

Central China’s Henan province is planning to issue a 52 billion yuan ($7.1 billion) new special-purpose bond (SPB) to swap off-the-books borrowings, in a sign that Beijing may be expanding the toolkit local authorities can use to downsize their hidden debt.

The purpose of the 10-year bond was disclosed in its ratings report published by the finance department of the provincial government on Wednesday. An official in the department confirmed to Caixin that the proceeds would be used for resolving “outstanding debt,” but the information has since been removed from the ratings report.

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Henan province plans to issue a 52 billion yuan ($7.1 billion) special-purpose bond to address off-the-books borrowings.
Beijing may be loosening rules to allow new special-purpose bonds for resolving local government hidden debt.
Henan’s bond proceeds are about 3% of its outstanding on-budget debt, addressing a portion of China's overall hidden debt, which IMF estimates at 60 trillion yuan.

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What Happened When

2015：: Special-purpose bonds (SPBs) were introduced as part of an overhaul of China’s budgetary system.

By 2018：: The Ministry of Finance had recorded outstanding local government hidden debt.

End-2023：: Outstanding on-the-books local government borrowings were 40.7 trillion yuan.

June 19, 2024：: The purpose of Henan’s new 52 billion yuan special-purpose bond (SPB) to swap off-the-books borrowings was disclosed in its ratings report.

AI generated, for reference only