Recently, there has been a lot of news about resolving local debt, especially hidden debt.
The so-called hidden debt is for the explicit debt of local governments, the issuer of which is issued by local governments and needs to be returned with fiscal funds, and the law clearly stipulates; The issuer of the former is mainly an urban investment company, which theoretically returns the company's profits without using fiscal funds, and the law does not stipulate that local governments must cover the hidden debts of urban investment companies, but in fact, the funds repaid by urban investment companies come from subsidies from local governments, which are also fiscal funds.
The central government has always controlled explicit debts very well, and all 31 provinces have local debt limits, and the outstanding debt balance cannot exceed the limit, so there is no risk of "thunderstorm" in explicit debt, and the repayment priority is the highest.
The status of hidden debt is different.
In theory, the city investment company owes money, which has nothing to do with the local government, in other words, even if it really "thunders" the creditor, it can only ask the city investment to repay the money, and cannot implicate the local government.
Of course, urban investment companies play the role of local government financing vehicles, and in order to continue to issue bonds in the future, there has not been a broken can and broken to make urban investment bonds a bad debt (not counting some non-standard product thunderstorms). Hence the name of local hidden debt.
These two years are the years when a large number of urban investment bonds are due, the pressure of debt repayment in various places is greater, coupled with the three years of the epidemic and the depression in the property market, which has made some local finances tight, and the hidden debt payment crisis has jumped on paper, and it seems that there may be accidents at any time.
The work of debt reduction has been going on for many years, but some of it has been increased and some of it has been added, and the increase may be more than the amount that has been reduced, and the hidden debt is snowballing more and more, especially in the 12 high-risk provinces in the central and western regions, and the pressure of debt reduction is relatively large.
It is reported that Guizhou's hidden debt will adopt the "433" model, that is, the local government will repay 40%, offset 30% with illiquid assets, and the creditors themselves will eat 30%.
If the news is true, then the creditor loses at least 30% of the principal, and the remaining 70% is sure to get back 40%, and 30% is more difficult, after all, illiquid assets are difficult to realize, even if they are realized, they must be discounted, which means that the debt service rate is only 40% to 70%.
I don't believe this news, for the simple reason that if you really do this, it is not to solve the problem by turning debt, but to create contradictions and intensify debt risks.
The repayment rate of 40% to 70% is lower than that of some thunderstorm trusts, the credit of the Guizhou government has fallen to freezing point, creditors will vote with their feet, and the explicit bonds issued by Guizhou in the future may also be unwanted, which will lead to the inability to "borrow new to repay the old", affecting the repayment of local explicit debts, which is unbearable in any province, and the central government will not be messed up by the localities.
Therefore, the "433" model is most likely just a small composition made up by some people, and has no credibility and feasibility.
Another news of debt reduction is reported by mainstream media, which is more reliable in theory and practice.
According to media reports, special refinancing bonds will be restarted in the second half of this year to replace hidden debt, with an issuance scale of more than 1 trillion yuan and tilted towards 12 high-risk provinces.
What are special refinancing bonds? Let's start with refinancing bonds.
Suppose a local government issues a total of RMB2 billion in October 2020 with a maturity of three years and maturity in October 2023; In order to repay the principal, another local bond of the exact same amount (2 billion yuan) was issued in September this year, and the purpose of the bond issuance was not to invest in local construction, but to return the debt issued three years ago, which is due in October, which is a refinancing bond.
As can be seen from the example, it is essentially a kind of borrowing new to pay off the old and using the issued local government explicit debt to repay the explicit debt that is about to mature.
The basic principle of special refinancing bonds is the same, and the "special" place is that the newly issued explicit bonds are used to repay implicit bonds such as urban investment bonds. From the perspective of the total scale of debt, it has not decreased, but part of the debt has changed from urban investment bonds to local explicit debt.
It doesn't seem to make sense in this way, how much money should be owed, but it's just a different name, but it's not. Replacing hidden debt with special refinancing bonds has at least two benefits.
First, let creditors "rest assured". Compared with hidden bonds, explicit bonds have a higher credit rating and priority, which can attract more creditors to buy, and can also make creditors who were afraid of holding urban investment bonds relax.
In addition, explicit debt is easy to monitor and manage, which can curb local borrowing impulses and avoid greater debt risks.
Second, the pressure to pay interest has decreased. The interest rate of urban investment bonds is very high, generally between 5% and 8%, and some even exceed 9%, which is related to the fact that the credit rating of hidden debt is lower than that of explicit bonds, and it needs to be compensated by higher yields.
Special refinancing bonds are explicit bonds, and the interest rate is similar to ordinary local government bonds, about 3%, which is far lower than urban investment bonds. Once fully replaced with special refinancing bonds, interest costs will be reduced by 50% to 70%, greatly reducing the fiscal burden on 12 provinces.
In this way, the special refinancing debt of more than 1 trillion yuan seems to be able to solve the local debt problem, but I will say but.
As mentioned earlier, the basic idea of special refinancing bonds is to borrow new to repay the old, no matter how good the name is, no matter how low the interest rate is, the principal must be repaid, to be clear, this is a debt extension of debt legalization, extending the debt due this year into the future, there will always be a day when the principal will be repaid.
Stock debt is accumulated by incremental debt, and the key is to curb the increase in incremental debt. Whether it is explicit or implicit, local governments can no longer be allowed to focus only on the interests of the present and not consider the future flood.
For a long time, our performance assessment is mainly based on GDP, investment is the fastest and most effective way to drive GDP, investment requires money, no money can only use urban investment companies to issue bonds, over time GDP is up, debt risk is increasing, and may even get out of control.
If the concept of relying on investment to drive the economy does not change, the local debt problem will not be completely solved, and even if it is resolved this time, it will appear again after a while, and it will not be solved smoothly every time.
Therefore, in order to control debt risk within a reasonable range, it is necessary to change the economic development model, from a debt investment model to a domestic demand-driven model, only in this way can we curb the impulse to borrow on local governments and avoid local governments from borrowing secretly and in various ways.