The pace of local government special bond issuance has quickened considerably in the third quarter. Data from corporate early-warning platforms shows that, as of September 14, newly issued special bonds had reached approximately 3.06 trillion yuan, accounting for nearly 70% of the full-year quota of 4.4 trillion yuan.
With the acceleration in special bond issuance, audit reports from various regions have highlighted issues such as idle funds, mismatched project returns, and insufficient operational efficiency, which have brought the entire "borrowing, using, managing, and repaying" chain of special bond performance management under the spotlight. A review of provincial budget execution and other fiscal revenue and expenditure audit reports for fiscal 2025, published by provincial audit offices, reveals that multiple regions are grappling with idle special bond funds and delays in converting them into tangible work output. For instance, Guangdong's audit report points to idle special bond funds in some cities and counties, while in Beijing, funds remain parked at district finance bureaus or implementing entities due to mismatches between applied bond amounts and actual needs, as well as inadequate preparatory work. Similar issues of fund idleness have been identified in bond projects in Gansu.
On the returns side, Inner Mongolia's audit report notes that, in some leagues and cities, projects have been left unused or poorly operated after completion, forcing local governments to cover bond interest payments. Some project returns have fallen far short of expectations, with interest that should have been repaid from project revenues being settled by local fiscal funds. In Zhejiang, certain projects in cities and counties show low utilization rates after completion, and in Shandong, some projects have generated no returns at all after finishing construction.
Commenting on these developments, Wen Laicheng, a professor at Central University of Finance and Economics, said that phenomena such as idle funds and underperforming returns in special bond performance management reflect that refined debt management levels in some localities still require improvement. Strengthening this aspect of management is crucial for preventing debt risks and enhancing the efficiency of fund utilization.
Recently, several regions have stepped up efforts to reinforce whole-cycle bond performance and closed-loop debt management, holding entities accountable for fund disbursement and project construction. On-the-ground supervision is being carried out in Tianjin and Sichuan for projects in areas like municipal engineering and rural water conservancy, with requirements to accelerate construction progress while ensuring project quality and safety. Anhui has established a tiered and categorized management and control system, with Tongling implementing weekly scheduling and monthly notification mechanisms to dynamically monitor project expenditure and investment completion indicators, issuing alerts to entities experiencing fund backlogs or falling behind schedule.
Luo Zhihang, chief economist at Yuekai Securities, noted in an interview that strengthening whole-lifecycle performance management of special bonds has played a positive role in generating more tangible work output. As reserved projects commence construction, the pace of fiscal spending is expected to accelerate, which will in turn support marginal improvements in infrastructure investment and help bolster the broader economy.
At the same time, the pilot program for "self-review and self-issuance" of special bonds continues to expand. Previously piloted in Beijing, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Shandong, Hunan, Guangdong, Sichuan, and Xiong'an New Area, the program has now been extended this year to include Hebei, Jiangxi, Hubei, and Chongqing, further clarifying approval authority and responsibilities for local bond issuance. By the end of June, pilot regions had issued 1.6 trillion yuan in new special bonds, accounting for 77% of the national total.
Zhao Zeyong, deputy director of the Debt Management Department at the Ministry of Finance, publicly stated that the next steps will involve strengthening closed-loop management of the "borrow, use, manage, and repay" process, accelerating the pace of fund allocation and use, implementing a negative list, ensuring timely collection of project operating revenues, and accelerating the establishment of a debt service reserve fund system to genuinely improve debt repayment capacity.