China Policy Banks To Issue RMB 1.0 Tril In Bonds In Next 3 Years: BofAML

China has authorized its policy banks to issue at least RMB 1.0 trillion (or ~$160B USD) of long-term special financial bonds to fund infrastructure projects over three years, with the first batch of RMB 300 billion could be issued soon, notes BofAML.

Sylvia Sheng and team of Bank of America Merrill Lynch in their August 10, 2015 “GEMs Daily- Asia Edition” report, note the infrastructure bond plan would be very different from the massive fiscal stimulus introduced in 2009.

Bigger role for China’s policy banks to boost infrastructure spending

Sheng and colleagues at BofAML point out that funding for infrastructure projects has been under pressure as Beijing reins in local government funding via LGFVs, and interest from private capital in public-private partnership is lackluster. The analysts note in the current sluggish real estate and manufacturing environment, infrastructure investment growth moderated to 19.2% in 1H15 from 20.3% in 1H 2014. The BofAML analysts anticipate the policy banks will play a pivotal role in boosting infrastructure spending through the infrastructure bond plan.

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Citing a Reuters report, the analysts point out that the infrastructure bonds from policy banks will likely be issued in batches over the next three years. They anticipate better credit support from policy banks will likely help alleviate funding pressure on infrastructure projects and accelerate infrastructure investment growth and stabilize the real economy.

Citing reports from the Economic Information Daily, which is an affiliate of the state-run Xinhua News Agency, Sheng et al. point out that a first batch of RMB300 billion of infrastructure bonds could be issued soon. The analysts point out that China Development Bank and Agricultural Development Bank of China will place RMB 200 billion and RMB 100 billion of bonds, respectively, with the state-owned Postal Savings Bank of China.