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The latest report from Moody's Investor Service, an international rating agency, predicts that the local government bond issuance quota will be much higher in 2019 than last year, with new bond issuance increasing by 70% compared with last year and issuance scale exceeding 3.7 trillion yuan. However, even within the authorization period of early issuance of the quota in 2019-2022, the local government fund gap will still exist.
The Moody's report also said that the early issuance of new debt quotas by Chinese local governments this year will improve local government debt management and help local governments plan ahead so as to make the issuance of local debt more stable and orderly in the next 12 months and support economic growth.
In previous years, the National People's Congress usually approved the local government debt limit in March, which means that most bond issuance will be concentrated in the middle of the year.
On January 1, 2019, the local government of China was authorized to issue part of the new debt in 2019, and the authorized period of issuing the new debt limit in advance will be 2022. During this period, the new debt limit issued in advance each year can reach up to 60% of the new debt limit issued by local governments in that year.
"The purpose of issuing bond quotas in advance is to enhance the direct financing capacity of local governments, or to open the front door in advance, to help solve the funding gap of local governments and to support economic growth." The report says. Moody's also expects that the total issuance of local bonds, including refinanced bonds, will exceed RMB 4.6 trillion yuan, an increase of about 10% over last year.
Moody's also said that earlier issuance of local bonds would reduce local governments'dependence on land transfer payments and off-balance-sheet financing through local state-owned enterprises (especially local government financing platforms) in the short term. Nevertheless, even within the authorization period of early quotas in 2019-22, the funding gap of local governments will still exist.

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