The Ministry of Finance disclosed the issuance of local ** bonds and debt balances in October 2023. As of the end of October 2023, the balance of local ** debt across the country was 401011 billion yuan. This is the first time that the local ** debt balance has exceeded the 40 trillion yuan mark.
The balance of local government bonds in the country exceeded 40 trillion yuan for the first time, which is indeed a data worth paying attention to, after all, it reflects the scale, structure, risk and impact of China's local ** debt. So, how do we interpret this data?Is 40 trillion more or less?What does it mean for ordinary people to invest in their daily lives?
1. Phenomenon: The local debt exceeds 40 trillion yuan, which is correct, but it is also easy to cause misunderstanding
First of all, why is it easy to misunderstand?Because China's local debt is divided into two categories: explicit (i.e., local debt) and implicit (i.e., interest-bearing debt of urban investment). There is a difference between local debt and local debt, but the meaning is completely different.
Generally speaking, the borrower of explicit debt (local debt) is local **, while the borrower of implicit debt (urban investment interest-bearing debt) is the urban investment company controlled by local **, and the current number is roughly around 53 trillion yuan (July data).Of course, the interest-bearing debt of urban investment is not a local ** debt on the surface, but the urban investment company is actually a shell of local ** financing, and at this stage, the local ** will also cover the interest-bearing debt of urban investment in disguise, so the interest-bearing debt of urban investment is regarded as "hidden local debt". As for the explicit debts announced this time, they should also be divided into general debts and special debts. **After the issuance of bonds to raise funds, if it is invested in non-yielding public welfare projects, such bonds are called general bonds. However, if you invest in a profitable project, this type of bond is called a special bond.
We need to know that before 2019, the balance of new general bonds was significantly higher than that of new special bonds. At the end of 2019, the balance of general bonds was 117 trillion, the balance of special bonds 94 trillion.In the three years since the epidemic, our entire economy has suffered tremendous difficulties, and special bonds have become the main way to stimulate the economy. **A large number of special bonds were issued, and the raised funds were concentrated in traditional infrastructure fields such as municipal construction, industrial parks, and transportation, so as to fill the gap in aggregate demand and delay the outbreak of the crisis through infrastructure investment.
As a result, during the three years of the epidemic, there was a large-scale outbreak of special bonds. From December 31, 2019 to June 7, 2023, the balance of general debt was from 117 trillion to 147 trillion, an increase of 3 trillion;The balance of special bonds is from 94 trillion to 226 trillion, up 132 trillion.However, whether it is a general bond or a special bond, after maturity, you can also issue bonds again to "borrow new to repay the old" to repay the principal, which is a refinancing bond. Generally speaking, refinancing bonds are used to borrow new money to repay the old ones and repay the principal of general bonds and special bonds.
So, how many of the local bonds issued by China every year are new bonds?According to the announcement of the Ministry of Finance, from January to December 2022, China issued a total of 7,367.6 billion yuan of local ** bonds, including "4,756.6 billion yuan of new local ** bonds" and "2,611 billion yuan of refinancing bonds". Of the $7,367.6 billion bonds issued in 2022, only 6456% can really play a role in driving the economy.
To sum up, the total amount of local debt in China is about 903 trillion, of which about 53 are hidden local debts with urban investment companies as the main borrowers0 trillion, with local ** as the main borrower of the explicit local debt of about 401 trillion.
Among the implicit debts, the amount of urban investment bonds formed by direct financing of urban investment companies is 137 trillion, and other interest-bearing liabilities (mainly bank loans) of urban investment are about 393 trillion. Among the explicit debts, the general debts used for non-revenue public welfare projects without cash flow income are 157 trillion, and the special debt for the cash flow income of the project with income is 244 trillion.2. Analysis: Is the 40 trillion local debt more or less?What are the problems?It is safe to say that where is the 40 trillion yuan of local debt?This year, it is not a matter of our clear debt increase, including breaking the deficit rate of 3%, issuing an additional 1 trillion special treasury bonds at the end of the year, and the local government will open the debt ceiling, increase debt issuance by a few trillion yuan, and convert it into leverage by a few percentage points.
I take 2022 as an example, ** debt as a percentage of GDP is only 21Around 4%, it is true that it is much lower than Japan and the United States, which are both above 100%. At the same time, even if we add in the 29% of GDP of local government debt, it is only 504%, compared to the generally accepted international warning line of 60% still has space.That is to say, combined with the extremely high credit of our ** sector, the low cost of borrowing, and the interest rate of about 3%, even if the bright side debt takes the way of issuing new bonds to repay old debts, the speed of interest rolling is slower, so the open side debt has never been the key to the problem, even if the local open face debt exceeds 40 trillion, last year's GDP is 121 trillion, and this year's conservative estimate of 5% growth is about 127 trillion, and the local open face leverage ratio is only 31The leverage growth rate of about 4% and less than 3% is very stable. However, the real problem of our local bonds is hidden debt, that is, platform debt, which is generally believed to be the basic characteristics of: the volume is not transparent, the issuance of bonds is not transparent, the spending is not transparent, the supervision is not transparent, and the interest rate is not even transparent, because this part is included in the corporate sector, but investors often run for the credit of the local government, and then it is the credit of the first place, and the result is that a large number of high-interest platform bonds (such as 8% are very normal) are created.
More importantly, the spending of this part of the debt is not transparent to supervision, the interest rate is extremely high, and the speed of interest rolling is much higher than that of the United States under the interest rate hike, and the local autonomy is very strong, resulting in the result that the result is that I don't like to invent face debt, and like to use platform bonds to finance, such as the urban investment land auction in recent years, which has increased trillions of local ** debts every year, combined with the characteristics of large stock and high interest, it is expected that the future fiscal revenue may not be enough to pay interest.
In fact, this has been the case in the past three years, and the growth rate of local ** sector debt is about three times the average growth rate of the past open debt, and since 2008, the leverage of the local ** sector has risen rapidly, and by the end of 2022, it has increased by 11 in three years8%, which is expected to accelerate this year, and the increase in local ** leverage is expected to be more than 5%.
Of course, you may think that these debts will become extra ** finance, or too naïve, this year is largely hidden debt open-faced, but a small part of the high-interest ** debt into low-interest open debt, it is not a bad thing, as for the expected fiscal policy and welfare, there may not be much spare energy to do this thing, debt is the top priority at this stage.
3. Essence: For ordinary people's investment, what warnings do the explicit and implicit data of local bonds give us?
Let's talk about the conclusion first, for ordinary people, we just don't buy financial products indiscriminately, it is likely that some strange non-performing assets will be mixed in, and others should be eaten and drunk, and many things can not be managed.
At this stage, in fact, it is impossible to ignore local debts, and it is impossible to completely "take away someone's child", and various localities are also engaged in special refinancing bonds, which is equivalent to replacing local hidden debts, that is, making hidden debts explicit.
That is to say, it is impossible to ignore domestic debts, so we can only help them slowly resolve them in this way, and the hidden debts will slowly become explicit, that is, they will be slowly put on the table to talk, and those who can't afford to pay back will be slowly repaid, and the interest will be slowly delayed, which is almost like this.
However, in terms of finance, our country has always put risk prevention in the first place, and all kinds of debts will not let them thunder, and will generally be resolved through extension, borrowing new to repay the old, and replacement.
For example, the official carried out 495 billion reverse repurchase + 1.45 trillion MLF;The scale of MLF that expired last month was 850 billion yuan, and a net 600 billion yuan was invested in the MLF sequel in November. The purpose is to maintain the abundant liquidity of the banking system, because the issuance of an additional 1 trillion yuan of treasury bonds in November will be opened and will be completed by the end of the year. In addition, a lot of special refinancing bonds have been issued in various places recently, which is also replacing the implicit debt of various places.Based on the above factors, we will continue to maintain a relatively large net investment volume in December and continue to turn into bonds, and the liquidity pressure on the financial system is huge, and it is likely that we will see a RRR cut in December.
Recently, there are many trusts and private placements, and wealth management products are becoming more and more unsafe, so we need to be careful. There are some industries that are not good, bad debts, and non-performing assets are packaged into good-looking wealth management products to sell to investors. In particular, the same is true for local government bonds, most of which are bought by banks.
First of all, we have to exclude all kinds of wealth management products with an expected yield higher than the 10-year treasury bond, which will be more risky. If the current expected rate of return of a wealth management product is more than 4%, then the probability of a 10% loss of principal is very large. After all, wealth management products are not principal protected now. Since the beginning of last year, it has been clearly stated that wealth management products are self-financing and can lose money. Wealth management products fell in November last year, and many R2 risk financial management losses were very fierce.
Why in the downward cycle of the real estate industry, and when the pressure of local bonds is increasing, wealth management products no longer protect the principal, we should also think about it. Real estate debt, local debt or something, these risks have to be transferred down to investors, you will not choose yourself, you have to resist lightning. Including trusts with a 5%-8% yield bought by many listed companies, they can't get the money back now.
The current yield on the 10-year Treasury note is 2About 7%, then any method of financial management is almost like this, this is the hard standard, too much higher than this indicator, you must be prepared for the principal can not be returned.
Anyway, you don't need to choose at all is reverse repo, large certificates of deposit, currency**, etc., no, many others still need rich experience, just choose among these three, the most suitable for novice investors.
Final words: There are always people on the Internet who like to distort the facts of China's debt out of context, and there is no economic common sense to follow the coaxing!
In short, compared with overseas countries, the leverage ratio of China's ** sector is obviously at a relatively low level, and the fiscal expansion during the epidemic has also remained restrained. Whether it is a narrow caliber or a wide caliber, China's ** debt is relatively healthy, much better than that of developed countries, which is why developed countries do not dare to smear our country with ** debt, they know that they will bring humiliation on themselves. Some people don't look at the data and don't have a global concept, so they follow people with ulterior motives to make fools, which is not right.
At the same time, we must also know that in fact, local debt will also be limited by the annual budget ceiling, and the local government has to maintain fiscal and economic growth in the form of implicit debt after the failure of land finance, which has brought about a debt crisis and the problem of capital efficiency, and has given rise to a large number of inefficient and low-quality local state-owned enterprises. Therefore, instead of this, it is better to take the initiative to transfer leverage to your own head, eliminate the risk of hidden debt, be more targeted and improve capital efficiency in liquidity investment, and slowly resolve risks, so as to truly achieve a stable and positive situation, isn't it?