Local governments in China have more than doubled bond sales to roll over maturing debt this year, helping to ease their repayment risk.

Cities and provinces sold about 1.9 trillion yuan ($293 billion) of so-called refinancing bonds in the first six months of the year, according to data from the Ministry of Finance and compiled by Bloomberg News. That’s a sharp increase from about 700 billion yuan sold in the same period of 2020, and 660 billion yuan in 2019.

Rolling On

More than half of municipal bonds sold are to refinance maturing debt

Sources: Ministry of Finance; Bloomberg

Note: Data stand for bonds sold in first half of each year; Refinancing bonds sold in 2019 include a small number of swap bonds

The refinancing bonds are sold to replace maturing securities, reducing pressure on local authorities to pay back the debt.

“The amount of debt due will keep growing, so the scale of refinancing isn’t likely to fall,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong. “That’s the case unless policy makers seriously look to reduce the absolute value of the debt, which is unlikely.”

At the same time, local governments have slowed the pace of special bond sales used to finance spending on infrastructure like highways and houses, in part due to a lack of quality projects and Beijing’s stronger focus on debt control.

Infrastructure investment contracted in May from a year earlier, and probably continued to decline in June and July due to a higher base from a year ago, according to economists at China International Capital Corp. They see investment growth rebounding after that to reach about 3.5% for the full year.

Losing Steam

Infrastructure investment in China contracted in May on high base

Source: Nomura Holdings Inc

Government-linked economists cited by the state-run China Securities Journal on Monday said fiscal spending may increase in the second half of the year.

“Along with the economic recovery becoming more and more solid, fiscal revenue will gradually return to the normal level, and fiscal spending will maintain its due growth rate,” the newspaper quoted He Daixin as saying. He is director of the Public Finance Research Department at the National Academy of Economic Strategy, a unit of the Chinese Academy of Social Sciences.

— With assistance by John Liu, Yinan Zhao, Jing Zhao, and Bihan Chen