Five Key Highlights of the New Regulations on Special Bonds

Recently, the General Office of the State Council publicly released the "Opinions on Optimizing and Improving the Management Mechanism for Special Bonds Issued by Local Governments" (hereinafter referred to as the "Opinions"), which introduces 17 measures aimed at optimizing and perfecting the management mechanism for special bonds. These measures include significantly broadening the scope of investment directions for special bond funds and the range of projects eligible for using such funds as project capital. Additionally, the "self-review and self-issuance" approach will be piloted in 11 localities, regularized application procedures for special bonds will be implemented, and oversight of fund usage will be strengthened to rigorously prevent repayment risks. All these efforts are designed to fully leverage the substantial impact of these bond funds in stabilizing investment, addressing shortcomings, and boosting consumption.

Highlight One

Special bonds expand both their investment directions and their use as capital.
The “Opinions” clearly stipulate that a “negative list” management system will be implemented for the areas in which special bonds can be invested. Projects not included on the “negative list” are all eligible to apply for funding from special bonds. The scope of investment areas for special bonds has been significantly expanded, addressing the previous issue of a reduction in the number of projects eligible for investment within the previously defined areas.
The “Opinions” have released a “negative list” specifying the investment directions for special-purpose bonds—essentially, a list of projects that local governments are prohibited from funding through special-purpose bonds. The list covers five major categories: projects with absolutely no revenue-generating potential, government buildings and facilities, vanity projects and prestige-driven initiatives, real estate projects, and general competitive industrial projects, with further detailed subcategories. Projects such as land reserves have been re-included in the scope of support provided by special-purpose bonds, which will help stabilize and halt the decline in the real estate market.
The “Opinions” have expanded the scope of sectors in which special-purpose bonds can be used as project equity capital from just over ten to 22, including infrastructure for emerging industries. Moreover, the upper limit on the proportion of special-purpose bond funds that can be used as equity capital has been raised to 30%. Normally, bond proceeds cannot be used as equity capital; however, the State Council has permitted special-purpose bond funds to serve as project equity capital in more than ten sectors, with an upper limit of 25%.

Highlight Two
Pilot program for “self-examination and self-initiated” special bond projects is being launched.
Delegating the review authority for special bond projects, we will select certain provinces with strong management foundations and regions undertaking major national strategies to launch a pilot program for “self-review and self-issuance” of special bond projects, thereby enabling economically robust provinces to play a leading role. The pilot regions will continuously organize and screen projects to compile a local project list. After obtaining approval from the provincial governments, these projects will no longer need to be submitted for review by the National Development and Reform Commission and the Ministry of Finance. Instead, they can immediately proceed with the issuance of special bonds. The compiled project list will simultaneously be filed with the National Development and Reform Commission and the Ministry of Finance.

Self-assessment and self-initiated pilot areas
Pilot provinces: Beijing Municipality, Shanghai Municipality, Jiangsu Province, Zhejiang Province (including Ningbo City), Anhui Province, Fujian Province (including Xiamen City), Shandong Province (including Qingdao City), Hunan Province, Guangdong Province (including Shenzhen City), and Sichuan Province.
II. Undertake the construction of Hebei Xiong'an New Area, a region of major national strategic importance.

Highlight Three
Establish a “green channel” for the continued issuance of special bonds for ongoing projects.
For provinces outside the pilot regions implementing “self-examination and self-initiation,” we will refine the “green channel” mechanism for project review. For ongoing projects that have already been approved by the National Development and Reform Commission and the Ministry of Finance and require renewal of special bonds, there is no need to reapply. After being reviewed and approved by the provincial government, these projects can directly proceed with the issuance of special bonds, while simultaneously filing a record with the National Development and Reform Commission and the Ministry of Finance.

Point four
The importance attached to preventing debt risks has significantly increased.
The “Opinions” enhance the prevention of repayment risks associated with special-purpose bonds and call for balancing project financing returns. To alleviate debt-servicing pressures in certain regions, local governments are permitted to allocate fiscal subsidy funds annually and mobilize revenues to repay debts, thereby achieving regional balance. Provincial-level governments will be responsible for ensuring repayment.
Meanwhile, the “Opinions” emphasize strengthening the management of special-purpose bonds and establishing a debt-service reserve fund system. Particularly in pilot regions, it ensures that the project authorities and relevant entities are responsible for collecting revenues to secure sufficient funds for debt repayment.
Regarding the asset management issues arising from special-purpose bond projects in certain regions, this "Opinion" strengthens the asset management of special-purpose bond projects. For instance, it calls for establishing detailed ledgers for the assets of special-purpose bond projects and categorizing the management of existing project assets, thereby mitigating risks such as the use of project assets as collateral for financing that could lead to new implicit local government debt and the loss of state-owned assets.

In addition, the “Opinions” also propose accelerating the improvement of the regulatory mechanism for special bond funds, implementing dedicated account management and earmarked use of funds, and strictly preventing misappropriation, interception, and diversion of funds.

Highlight Five
Establish a project application review mechanism featuring “regularized submissions and quarterly reviews.”
Provinces outside the regularly piloted regions shall establish a mechanism for “self-assessment and self-initiated” standardized reporting, with quarterly reviews. After special bond projects in various localities have been reviewed and approved by the provincial governments, they shall be routinely reported through the information systems jointly maintained by the National Development and Reform Commission and the Ministry of Finance. Specifically, the centralized submission of next year’s projects must be completed by the end of October each year, and supplementary submissions for the second quarter, third quarter, and full-year projects must be completed by the end of February, the end of May, and the end of August of the following year, respectively. Throughout the year, both departments will keep their information systems open to local authorities. In early March, June, September, and November each year, they will collect locally submitted data at scheduled intervals and issue review results within the same month.