We are familiar with many new words due to the new environment and new concept.
For example, microstimulation is a concept proposed relative to the previous stimulation. It will not work by just stimulating, nor by no stimulating at all for economy downturn. Then microstimulation arises. Simply speaking, it is oriented stimulation. In other words, money should be spent properly and efficiently. There is another new word called oriented drop, which is the microstimulation on monetary policy, corresponding to the microstimulation in finance. The oriented drop is also a concept with target. It is not allowed to give money to the industries which are in badly need for money and spent most needlessly before, but to small and micro enterprises and agriculture-related enterprises, i.e. concept of spending money properly and efficiently.
In fact, besides microstimulation and oriented drop in money spending, the latest and most important concept is bond issuing by trial local governments, which is a breakthrough attempt. However, excessive conceptualization makes admiration arising despite incomprehension of the actual meaning.
We really feel this way by only reading a notice. On May 20, the Ministry of Finance issued the notice on trial measures of local government issuing and repaying bonds by itself in 2014, clarifying governments of trial places issuing and repaying bonds by itself, including Shanghai, Zhejiang, Guangdong, Shenzhen, Jiangsu, Shandong, Beijing, Jiangxi, Ningxia and Qingdao. Specific requirements include that annual bonds issued per year should not exceed the current bond issuing limit approved by the State Council and that period of government bonds issued in trial places includes 5 years, 7 years and 10 years with structural proportion being 4:3:3.
The news has been fully reported by various media, mostly being front-page headlines and many comment articles have been released by economists. However, just as the above mentioned, since the topic is over serious and the concept is too abstract, it is difficult for an average man or even investor to find out the real essence, direct results to be brought and investment opportunity.
Simply speaking of several major principles, issuing bonds by local government does not mean transferring bonds of the central government to local governments for spending nor issuing bonds by central government for local governments. The biggest difference lies in credit of the state being changed from the central government to that of local governments and the second biggest difference lies in local governments being able to raise capital repaying capital and interest in their own places with more initiative.
Though it’s conducted only in trial places with amount limit and structure both being controlled by the Ministry of Finance, the autonomy degree will be much broader in the future. By such a way, rights and obligations between the central government and local governments can be divided, and capability of local government to issue bonds and things can be done can be determined with the best results, solving the problem of financing platform in local governments and making accounting clear and transparent and solving problem of land finance of local government as well as eliminating dependence on real estate.
Two paragraphs have been made to repeat these major principles, similar to those in various published reports and comments and people may have the same feeling -- it is important! However, people are still puzzled that what it has to do with us.
What really matters is detail. I would feed the same way as you and could not present these significance aspects without more information being published. However, details will come out sooner or later. Before details come out, let me explain a kind of misunderstanding.
Few days ago, when some of my colleagues were discussing the current house price decline in different places, some of them showed great worry on certain cities, since it is found through field visit that vacant premises are numerous and there are even some communities with few inhabitants, which is likely to cause breaking down of real estate market in that place. Of course, people also worry about financial situation of that city. As a result, land finance will absolutely break down, and the government definitely wants to save the real estate market. However, they can do nothing without money. It is far from being enough only by relaxing house purchase restriction. At this very moment, someone may say that it’s nothing serious, for bonds can be issued by local government. The central government is conducting trial project and the place is just in the project. Then money comes and all things can be solved.
Really? If there is no more operation detail, we could only make grounding guess on independent bond issuing by local government.
Actually, issuing bonds by local government does not mean that money can be spent rashly as we imagined. It is reported by daily paper of Beijing Daily at the end of May that more than half of RMB 10.5 billion bonds of local government issued and repaid by Beijing is for environment resource projects.
As said by Li Yingjin, Director of Finance Bureau of Beijing Municipality, local bond capital is planned to be used for affordable housing projects, social undertakings, transportation infrastructure and environment resources. “The Ministry of Finance agreed that Beijing issues and repays bonds of local government in 2014 for the first time, requiring that the raised capital should be firstly used for major public projects and use for office buildings and construction for others project clearly prohibited by the central government is strictly prohibited.””
Seen in a more specific manner, in the 24 key projects of five categories where local bonds are planned to go to, projects of environment resources take the largest proportion, accounting for 10 in total with capital of RMB 5.5 billion, with RMB 3 billion for afforestation on plain in 2014 and RMB 1.65 billion for 5 water conservation and water treatment projects.
Therefore, it is the best way to see public announcement of local department of finance to know working principle of independent bond issuing by local government, which will make clear where the money comes from and goes to. Since these are bonds issued and repaid by local government itself, usage of money can be made clear so as to persuade people to buy such bonds and rationally decide interests and cost of issued bonds.
If we want to find an opportunity in bonds issued by local governments, benefit to economic structural adjustment or to economic growth becomes insignificant, but what is important is the destination of the microstimulation of such money after bonds are issued by local government. Seen from situation in Beijing, most of the microstimulation is invested to environmental protection, stimulating investment in environmental protection industry and providing opportunities for environmental protection enterprises.
Haze in Beijing-Tianjin-Hebei Region, that’s where the microstimulation lies in.
Next up:Development Prospect of Electric Power Environmental Protection in 2014
