On November 11, 2016, the Shanghai government bonds became the first local government bond product that was successfully issued on the Shanghai Stock Exchange (SSE). In the past three years, under the leadership of the Ministry of Finance and the China Securities Regulatory Commission (CSRC), with the strong support of local governments, the SSE has made full use of the characteristics of the exchange bond market, bolstered the national fiscal policy, served the real economy, and boosted the high-quality development of the local government bond market.
Supporting the implementation of the proactive fiscal policy and serving the national core strategies
In the past three years, the SSE has always placed the implementation of the decisions and deployment made by the Party Central Committee and the State Council at the top of the work, provided strong support for the local governments to fully implement the proactive fiscal policy, prevent and defuse the hidden debt risks, and step up the counter-cyclical adjustments, and played an active role in stabilizing investment, expanding domestic demand and addressing inadequacies. Statistics show that the issuance of local government bonds on the SSE has covered 32 provinces and municipalities nationwide, and the size of issuance has grown rapidly, from RMB0.88 trillion in 2017 to RMB1.8 trillion in 2018, and RMB1.92 trillion in the period from January to October 2019.
The SSE has continued to serve the national core strategies, push forward the development of the undertakings concerning people's livelihood, and provide the bond financing services for the construction of the programs in the key regions such as the coordinated development of Beijing-Tianjin-Hebei region, the development of the Yangtze River Economic Belt, the construction of the “Belt and Road”, the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, and the integrated development of the Yangtze River Delta region. The purposes of the raised funds have covered a variety of areas such as the affordable housing, the ecological and environmental protection, the medical treatment and health care, the water, electricity, gas and heat and other infrastructure construction projects of public utilities.
The issued products are increasingly improved, and the investment participants are continuously diversified.
In the past three years, the SSE has vigorously brought the functions of the exchange bond market into full play, and the local government bond market has gradually shown the characteristics of scale and market-oriented development, diversified investment participants and enriched terms and types, with highlights frequently seen. From the perspective of the types of the local government bonds, in addition to the general local government bonds, the special local government bonds have developed rapidly, mainly for the purposes of land reserves, shantytown transformation, toll roads, etc. In terms of the investment participants, the investor base continues to be diversified, with the sources of funds further enriched. The financial institutions such as banks, securities companies, insurance companies and funds, industrial and commercial enterprises, overseas institutions and individual investors have all participated in the investment in the local government bonds on the exchange. Since the SSE assisted the Shanghai Municipal Finance Bureau with the addition of 5 securities companies to the underwriting syndicate in 2016, the volume of the bids won by the securities companies on the SSE market has also increased year by year, with the proportion of the volume in the issuance size rising from 3.8% to 11.8%. Regarding the terms of the products, the terms of the local government bond products have been gradually made more complete, with the extra long terms favored. From January to October this year, the SSE market issued RMB450.28 billion of local government bonds with long terms (including 15 years, 20 years and 30 years), accounting for 60% of the market’s total, and specifically, 38 bond products with the term of 30 years have been issued with the value at RMB252.7 billion, gradually showing the characteristic of normalization.
Taking multiple measures to regulate development, and continuously vitalizing the market with innovation.
In the past three years, the SSE has taken multiple measures for the local government bonds issuance business, and provided strong support and guarantee for the issuance of the local government bonds with focus on service, regulation and innovation. First of all, attaching importance to the professional services and relying on the support of the well-developed data base, the SSE has timely paid attention to the interest rate trends and the changes in the money supply in the market, and provided market-based suggestions on issuance for the issuers. Secondly, the SSE has coordinated the efforts of the intermediaries in strictly checking the materials, so as to improve the information disclosure quality and regulate the operations in issuance and listing. Thirdly, adhering to research and innovation, the SSE has completed the research tasks such as the issuance of the long-term bonds, the research in individual investors, and the channels for the overseas investors to invest in domestic bonds. For example, with the successful launch of China’s first special local government bond product characterized by the raised funds being used in project capital, the SSE has taken the lead to assist the local government with the first step in the reform of management of special bonds; the smooth issuance of China’s first shantytown transformation bond product and healthcare bond product shows that the SSE has stayed true to the original aspiration and mission for the cause of people’s livelihood; with the successful launch of the “HFT Fund SSE 10-year Local Government Bond ETF”, China’s first local government bond ETF product, the SSE has created a new way to improve the liquidity in the secondary market.
Advancing reform by improving mechanisms, and boosting the high-quality market development.
Looking forward to the future, the SSE has a long way to go in the construction and development of the local government bond market. The SSE will continue to vigorously shore up the local governments in regulating the financing, step up the support for the local governments’ efforts in the special bonds of self-balancing between project benefits and raised funds as well as the supporting market-based financing, accurately target the key areas and weak links, push the local governments to improve the debt financing mechanism, and advance the reform of special bond management.
In the future, the SSE will focus on facilitating the investment in local government bonds, and improve the structure of investors; the SSE will further enhance the trading mechanism and consolidate the foundation of the secondary market; the SSE will also strive to strengthen the professional competence of the lead underwriters and promote the high-quality development of the local government bond market.