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Introduction:Local ** special bonds originated from the Guo Fa (2014) No. 43 document ("Opinions on Strengthening the Management of Local ** Debts") issued in September 2014.
What are the areas in which special bonds are invested?
Special bonds support 11 major areas. They are: transportation infrastructure, energy, agriculture, forestry and water conservancy, ecological and environmental protection, social undertakings, urban and rural cold chain and other logistics infrastructure, municipal and industrial park infrastructure, major national strategic projects, affordable housing projects, new infrastructure, and special major projects.
1. Transportation infrastructure
1) Railways (including intercity railways and special railway lines);
2) Toll roads;
3) Civil airports (excluding general airports);
4) Water transport;5) Urban rail transit and urban (suburban) railways;
6) City Parking Lot;
7) Comprehensive transportation hub (including integrated and comprehensive utilization of comprehensive transportation hub).
2. Energy
1) Natural gas pipeline network and gas storage facilities;
2) Coal storage facilities;
3) Urban and rural power grids (rural power grid transformation and upgrading, urban distribution network, commercial grid-type new energy microgrid in remote areas;
4) Large-scale wind power bases, large-scale photovoltaic bases, pumped storage power stations and other green and low-carbon energy bases (including deep-sea wind power and its transmission projects), renewable energy heating in villages and towns;
5) New energy vehicle charging pile;
6) Charging and swapping infrastructure in the public sector.
3. Agriculture, forestry and water conservancy
1) Agriculture;2) Water conservancy;
3) Forestry and grassland industry.
4. Ecological and environmental protection
1) Urban sewage and garbage collection and treatment.
5. Social undertakings
1) Health (including emergency medical treatment facilities and public health facilities);
2) Education (pre-school education, vocational education and dormitories for students in general universities);
3) Elderly care;
4) Cultural Tourism;
5) Other social undertakings.
6. Urban and rural cold chain logistics infrastructure
1) Urban and rural cold chain and other logistics infrastructure (including national logistics hubs, agricultural product wholesale markets);
2) Grain storage and logistics facilities;
3) Emergency material storage and logistics facilities (including emergency material transfer station and suburban warehouse base for daily necessities);
4) Wholesale market of agricultural products.
7. Municipal and industrial park infrastructure
1) Municipal infrastructure: water supply and drainage, heating (including long-distance heating pipelines), gas supply, underground pipeline corridors;
2) Industrial park infrastructure (mainly supporting national and provincial industrial park infrastructure).
8. Major national strategic projects
1) Coordinated development of Beijing-Tianjin-Hebei;
2) Development of the Yangtze River Economic Belt;
3) "The Belt and Road" construction;
4) Guangdong-Hong Kong-Macao Greater Bay Area construction;
5) Integrated development of the Yangtze River Delta;
6) Promote Hainan to comprehensively deepen reform and opening up;
7) Ecological protection and high-quality development of the Yellow River Basin;
8) Chengdu-Chongqing Economic Circle.
9. Affordable housing projects
1) Renovation of old urban communities;
2) Affordable rental housing;
3) Shantytown reconstruction: mainly support projects under construction, and moderately support new projects;
4) Public rental housing;
5) Transformation of urban villages;
6) Affordable housing.
10. New infrastructure
1) Informatization of municipal administration, public services and other livelihood fields;
2) Intelligent transformation of traditional infrastructure such as rail transit, airports, and highways;
3) Cloud computing, data center, artificial intelligence infrastructure (mainly supporting national computing hub nodes and national data center clusters);
4) Fifth-generation mobile communication (5G) convergence application facilities;
5) National and provincial public technical services and digital transformation platforms.
11. Special major projects
Can the funds from the special bonds be used as project capital?
Under certain conditions, the funds of special bonds can be used as project capitalUse. According to the relevant policies and regulations of the People's Republic of China, the funds of special bonds can be used to supplement the project capital, subject to the following conditions:
Projects need to meet specific investment areas:The project must be in line with the major decision-making and deployment, with a large demonstration effect: transportation infrastructure, energy, agriculture, forestry and water conservancy, ecological and environmental protection, cold chain logistics facilities, municipal and industrial park infrastructure, etc.;It shall not be used for land bank and real estate-related fields, debt replacement, and industrial projects that can be fully commercialized.
The project must be operational and profitableCircular No. 33 requires that if the special income meets the financing conditions after the repayment of the principal and interest of the special bonds after the assessment of the project proceeds is repaid, it is allowed to use part of the special bonds as a certain proportion of the project capital, but excessive financing shall not exceed the actual level of the project income.
The financing of local ** planning projects must meet the proportional requirements:The amount of capital used as capital shall be reasonably planned according to the overall quota of special bonds in the current year, which shall not exceed 25% of the overall quota of the province.
Special bonds cannot be used as PPP project capital:According to the "Implementation Opinions of the Ministry of Finance on Promoting the Standardized Development of ** and Social-Capital Partnership", PPP projects shall not use debt funds as capital. Because this model is prone to generate fiscal bottom expectations and amplify leverage, the risks are relatively large, and there are many challenges at the operational level.
It should be noted that when the special bond funds are used as project capital, the whole process management of project investment, construction and operation should be followed to ensure the compliance, safety and effective use of the funds. At the same time, the project implementation entity also needs to pay attention to the benefits and risks of the project to ensure that the project can achieve the expected economic and social benefits.
The type of project in which special bonds are used for project capital
There are 13 categories of projects, namely:Railways, toll roads, trunk lines and regional airports in the eastern region, inland avionics hubs and ports, urban parking lots, natural gas pipeline networks and gas storage facilities, urban and rural power grids, water conservancy, urban sewage and garbage treatment, water supply and drainage, new energy projects, coal storage facilities, and infrastructure of national industrial parks.
The project capital can be used in its entirety
Is the special bond fund used as capital?
The project capital is usually not fully funded by special bonds. The project capital should meet the requirements of the proportion of capital in different industries, and at the same time, the capital should not be used entirely as special bond funds. The local ** or project unit shall raise a part of the capital by itself, and the shortfall part can use special bond funds. From the perspective of the special bonds issued, few special bonds account for more than 60% of the capital, and conventional fixed asset investment projects generally require a minimum capital of not less than 20%.
This arrangement is primarily to ensure the financial soundness of the project and avoid the financial risks associated with over-reliance on debt financing. At the same time, by raising part of the capital by itself, the project unit can be urged to pay more attention to the operation management and income of the project, and improve the economic benefits of the project. In practice, the project unit needs to reasonably arrange the capital structure according to its own financial situation and project needs to ensure the smooth implementation of the project.
How many years can special bonds be issued?
According to the "Opinions on Further Improving the Issuance of Local ** Bonds" (Cai Ku 2020 No. 36), the maturity of local ** special bonds can be divided into multiple grades, including:1 year, 2 years, 3 years, 5 years, 7 years, 10 years, 15 years, 20 years, 30 years, etc. When issuing special bonds, local governments can reasonably choose the appropriate bond term according to factors such as the actual needs of the project, the capital cycle and market conditions.
The maturity of the special bond should match the maturity of the project, and factors such as investor demand and the distribution of maturing debt should be taken into account. This reduces the risk of maturity mismatch and ensures that project funding needs are met while avoiding idle funds and excessive debt stress.
In practice, the local government will flexibly select the appropriate special bond maturity according to the specific situation and financial situation of the project. Generally speaking, for projects with a longer construction and operation period, such as infrastructure construction, energy, transportation, etc., special bonds with a longer maturity may be selected, such as 10, 15, 20 or 30 yearsFor projects with shorter maturities, special bonds with shorter maturities may be chosen, such as 1 year, 2 years, 3 years, etc.
Can special bonds be repaid in installments?
Special bonds can be repaid in installments. According to the capital needs and income characteristics of the project, the principal repayment method of the special bond can take different forms. There are two main ways:
Amortization (annual principal repayment):The repayment is made in installments before the bond matures. Spread the principal and interest to maturity of the bond over different years. This method helps to smooth the debt repayment pressure during the duration of the bond, so that the project party can gradually complete the repayment of the principal before the maturity of the bond.
Lump sum principal repayment at maturity:After the bond matures, the principal is repaid in a lump sum. This method is suitable for the situation where the project income is realized in a concentrated manner at the maturity of the bond, and can ensure that the project party has sufficient funds to make a one-time repayment when the bond matures.
In practice, the principal repayment method of special bonds can be selected and adjusted according to the specific situation of the project and policy requirements. Amortization and lump sum principal repayment at maturity can be used separately or in combination to meet the project's funding needs and repayment capacity.
When will the special bonds be issued in advance?
The early issuance of special bonds is usually to speed up the issuance and use of local bonds, ensure the capital needs of major projects in key areas, and give full play to the important role of bond funds in stabilizing investment, expanding domestic demand, and making up for shortcomings. Specifically, the timing of the advance release may vary depending on factors such as national policies, economic situation, and project needs.
Based on past experience, the special bond quota for 2019-2022 was issued in advance, of which the early approval for 2019 and 2022 was issued in December of the previous year, the early approval for 2020 was issued in November of the previous year, and the early approval in 2021 was issued in early March of the same year.
For example, some of the special bonds in 2024 are expected to be issued in November or December 2023. The specific advance release time and quota will be determined comprehensively according to factors such as national policies, economic situation and project needs. The quota of special bonds issued in advance will help all localities plan projects in advance, start the issuance work as soon as possible, and improve the progress and efficiency of bond issuance and use, so as to better support the construction of key projects and social and economic development.
At the same time, the policy stipulates that the amount of special bonds issued in advance shall not exceed 60% of the new limit in the current year. In practice, the quota issued in advance at the end of each year accounts for 40%-50% of the total quota for the following year.
Which units can be the main body of project implementation?
The entity implementing the special bond project refers to the entity responsible for the use of the special bond funds and the implementation of the project. It mainly includes the following types of units:
Project Industry Authority:The competent department of the industry with the certificate of legal person of the government shall be responsible for the management and supervision of the special bond projects of the industry to which it belongs.
Public Institutions:Such as hospitals, schools, scientific research institutions, etc., these units usually undertake public welfare projects, and can raise funds through the issuance of special bonds.
Local Urban Investment Companies (Urban Investment Companies):The state-owned enterprises established by the local government are mainly responsible for urban infrastructure construction, land development and other projects. Local urban investment companies can be used as the main body for the implementation of special bond projects to raise funds for urban development and infrastructure construction.
Income from special bond projects**
Does it need to match the construction content?
Yes, the proceeds of special bond projects** need to match the construction content. This means that the benefits of the project should be directly related to the construction content of the project to ensure the economic efficiency and sustainability of the project. When applying for special bond funds, the project team needs to follow the following principles:
Relevance Principle:Revenue** from the project itself. The benefits of the project should be closely related to the project itself to ensure the sustainability of the project.
Principle of directness:The income is from the construction content of the project. The project income should be directly generated from the specific content of the project construction process to ensure the effective use of funds.
Measurable Principle:There is a reference basis or standard for income. The evaluation of project benefits should have a clear reference basis or standard to facilitate the reasonable evaluation and supervision of the project.
Following these principles will help ensure that the special bond funds are used for projects with real benefits and development potential, so as to improve the efficiency of fund use and realize the economic and social benefits of projects. In practice, the project party needs to fully demonstrate the compatibility between the project income and the construction content during the project application and implementation process, so as to successfully obtain the financial support of the special bond.
The direction of key support for special bond funds includes "two new and one heavy", what does it refer to?
"Two new and one heavy" refers to the three directions of key support in the investment of local ** special bond funds. Specifically, they are:
New Infrastructure:This includes a new generation of information networks, 5G applications, charging piles, new energy vehicles, etc., aiming to stimulate new consumer demand, help industrial upgrading, and promote high-quality economic development.
New Urbanization:It mainly focuses on the improvement of public facilities and service capacity in the county, so as to meet the increasing demand of farmers to work and settle down in the county. This will help promote the integrated development of urban and rural areas and improve people's living standards.
Major Projects:It mainly involves the construction of transportation, water conservancy and other infrastructure. Such projects are of great significance to national economic development, improvement of people's livelihood and coordinated regional development.
By focusing on supporting the "two new and one heavy" areas, the local special bond funds will help expand effective investment, make up for the shortcomings of development, and promote economic transformation and upgrading. In practice, according to the national policy guidance and the actual local demand, the investment direction of special bond funds will be reasonably arranged to achieve the overall goal of economic and social development.
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Links to previous issues
Sichuan Province: Support the application for the issuance of special bonds with a maturity of up to 30 years, and support the application of the pilot project for the resolution of hidden debt risks.
*Economic Work Conference: Systematic deployment of economic work in 2024 Reasonably expand the scope of special bonds to be used as capital.
Company address: 11th Floor, Block B, China Resources Plaza, Jinjiang District, Chengdu, Sichuan Province.
Zip code: 610011
Contact: 19182197205