Jun 11, 2019 (China Knowledge) - China is easing restriction of local governments’ borrowing for major infrastructure projects as it looks to spur economic activity in the country.
According to a document issued on Monday by the central government, local governments will be allowed to use proceeds from special-purpose bond issuance as project capital for certain infrastructure investments.
Previously, China had prohibited local governments from using any borrowed funds as project capital to curb local debt surges.
In addition, the document also encourages local governments and financial institutions to expand funding sources for major projects through market-based financing instruments as long as they do no flout any rules.
As of the latest document, local governments can now use special-purpose bonds to raise project capital for major and strategic investments in highways, railways, electricity and gas projects.
These special bonds have to be used for projects that have been proven to make certain returns on investment and local governments should also increase risk controls for these special bond issuances and project management.
The new policy will help to encourage more market-oriented fundraising, increase investment effectiveness and also improve economic structure while also checking hidden debts of local governments.
This policy easing also highlights China’s drive to boost economic growth amid weakening domestic demand and an extended trade dispute. Last week, the International Monetary Fund (IMF) lowered China’s growth forecast to 6.2% from 6.3% citing risks related to uncertainty from the trade war.
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