[HONG KONG] China plans to raise US$160 billion in bonds to fund infrastructure projects over the next few years, sources said, in a sign Beijing is intent on stepping up investment to spur the economy and making good on huge but vague spending pledges.
Beijing plans to use a big policy lender, the Agricultural Development Bank of China, and other development banks to issue more than 1 trillion yuan (US$161 billion) in bonds, to fund big-city projects such as pipelines, water treatment or subway systems, three people familiar with the plan said on Friday.
"It's indicative of the leadership's desire to stabilize the overall economy and investment, and avoid a hard landing," said Yang Zhao, chief China economist at Nomura in Hong Kong.
Chinese policymakers have been unveiling ambitious infrastructure plans as the world's second-largest economy has slowed markedly, but often provide few funding details.
In February, an official newspaper said 14 provinces would invest a staggering 15 trillion yuan on infrastructure and other projects, equal to almost a quarter of China's economic output, but funding plans were sketchy and referred to financing options with only a limited track record of success in China.
The new bonds will be issued in tranches, the first as soon as about a month from now, and will be supported by the central bank and other state agencies to ensure adequate demand, the sources said.
"The funds will be primarily used to pursue large city infrastructure projects and also poverty-alleviation projects," one of the sources added.
China's economy is suffering from slower urban investment growth, which hit a 14-year low of 11.4 per cent in June after a sharp downturn in the housing market. Flagging infrastructure investment is also a major problem.
Chinese policymakers have repeatedly expressed a desire to guide the economy away from a strong dependence on investment and towards a more consumer-driven model, but the process remains partial and incomplete.
On Thursday, state radio quoted members of the ruling Communist Party's Politburo as saying that "new growth momentum is not sufficient, while the old engine is getting weak".
The new bonds are likely part of a broader strategy to shore up this "old engine" while the new one gathers steam.
The sum to be raised is enormous but, if spent over several years, it would only amount to a boost of about 3-5 per cent in annual infrastructure spending, said Nomura's Yang Zhao.
Policymakers have taken steps to bolster the lending position of state banks, which often fund large infrastructure and other public welfare projects.
China's State Council also announced plans this week to build an underground pipeline network for energy and telecom networks. A council statement quoted Premier Li Keqiang as saying existing power grids and telecom networks would be moved underground as a part of the project.
According to Lu Kehua, deputy minister for the Ministry of Housing and Urban-Rural Development, the plan is to build 389 km (242 miles) of pipes in three years across 10 pilot cities, for a total investment of 35.1 billion yuan, according to an official transcript of remarks he made at a Beijing briefing.
The new bonds' maturities will likely be 10 years or longer, though the detailed issuance plan is still under discussion, the sources said.
An Agricultural Development Bank official, when reached for comment, said he had no information on the programme.
The central bank did not respond to a request for comment. The finance ministry could not immediately be reached for comment.