• Funds Blog
• March 7, 2025

Boosting Efficiency in Special Bond Programs

Advertisements

In recent years, special bonds have emerged as a crucial tool for local governments in China to catalyze effective social investments and to drive stable and rapid economic growthThese bonds are integral to stimulating investment, bridging funding gaps, and boosting domestic demandAs a significant implementer of proactive fiscal policies, special bonds are being utilized to enhance the efficacy of these policies, thereby injecting robust momentum into the economy's recovery and high-quality development.

The scale of issuing special bonds has been steadily expanding across various regions in ChinaIn 2024, the government plans to allocate an impressive 3.9 trillion yuan in special bonds, marking an increase of 100 billion yuan from the previous yearThis continued expansion sends a clear signal of fiscal strength and intentIn the first half of 2024 alone, the country witnessed a total issuance of 2.45 trillion yuan in special bonds, with 1.49 trillion yuan being newly issued, indicating a significant acceleration in the bond issuance pace that began gaining traction in May.

Furthermore, the scope and structure of these bonds’ allocation are continuously improving

Advertisements

The Ministry of Finance, in concert with relevant departments, is actively optimizing the targeting of special bonds towards more innovative sectorsThe focus has shifted towards integrating areas such as new energy, new infrastructure, and emerging industries into the bond frameworkProjects like "independent new energy storage" and "comprehensive water environment management in key river basins" have now been earmarked for special bond supportAdditionally, social housing initiatives are now included as eligible projects, enhancing the leverage effect of special bonds significantly.

There has also been a discernible inclination in the distribution of special bond quotas, favoring economically advanced regions with mature project preparations and higher investment efficiencyThe review process for the quality of special bond projects is undergoing heightened scrutiny across the nation

Advertisements

For instance, in Anhui Province, an "expert online review" platform has been established, while Fujian's finance department has arranged third-party expert evaluations to rigorously audit the anticipated revenues and other critical indicators of special bond projectsThese actions are aimed at enhancing project viability and improving the quality of project reserves.

The application of special bond funding has a profound impact on local socio-economic developmentIt plays a critical role in solidifying the foundation for high-quality local economic growth, adding developmental momentum, facilitating industrial transformation, and maintaining social harmony and stabilityHowever, challenges persist with the issuance and management of special bondsIssues such as the tendency to focus more on issuance than on management still linger, and some projects have yielded disappointing or nonexistent returns, leaving governments with considerable pressures related to principal and interest repayments

Advertisements

Moreover, there are instances where the management of bond funds is not up to standard, with some regions experiencing problems like idle funds and misappropriation.

To address these challenges, a multi-faceted approach to optimizing the usage and effectiveness of special bonds must be takenIt is paramount to enhance the selection process for special bond projects and to build a comprehensive reserve of projectsEstablishing a robust expert review library and crafting rigorous project selection and evaluation criteria are essential stepsBy developing detailed assessment indicators and constructing a scientific review system, governments can better filter project viability, reduce fraudulent practices, and improve reserve quality.

Moreover, local governments should reasonably broaden the categories eligible for special bond financing and increase the proportion of funds allocated to capital projects

• Hungary Accelerates Green Energy Transition
• Boosting Efficiency in Special Bond Programs
• Streamlining Financial Services for the Real Economy
• Ports Gain Prominence in Global Shipping
• Federal Reserve Rate Cut

Loosening the entry barriers for social capital will encourage market investment in major construction initiativesExploring synergistic funding models that integrate special bonds with market financing options can effectively amplify the leverage effect of these funds, consequently stimulating more effective investments and fostering a diversified funding landscape.

It’s critical to establish a holistic management framework for special bonds covering their entire lifecycleBy focusing on generating tangible outputs, a closed-loop management chain that oversees borrowing, utilization, management, and repayment at every stage should be implementedThis shift is vital to transforming the current landscape that largely emphasizes bond issuance while neglecting management responsibilitiesEffective systems for managing special bond funds must be instituted to ensure that all financial movements regarding bonds, project capital, revenues, and repayments are accurately accounted for, thereby enhancing oversight and daily management.

Enhanced regulatory scrutiny over special bond fund usage is also essential

A comprehensive monitoring mechanism should be established, utilizing information technology to develop platforms that allow for real-time tracking of fund distribution, usage, and flowClear delineation of regulatory responsibilities at every stage of the process will promote collaborative oversight among various governmental departments, effectively diminishing instances of prolonged underutilization or ineffective investment of fundsEstablishing accountability frameworks for misallocation, up to and including strict penalties for misappropriation, will be critical moving forward.

The road ahead for special bonds in China is filled with both opportunities and challengesEmbracing robust management and revising fiscal strategies while prioritizing effective projects will be paramount for ensuring that these financial instruments achieve their intended impactAs local governments navigate this complex landscape, their ability to leverage special bonds will be a key determinant of economic resilience and sustainable growth going forward.