Guide reading

The new policy of expanding the capacity of special bonds will add leverage to financial funds, or boost the growth rate of infrastructure investment by 10% for the whole year.

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On March 20, the 21st Century Business Herald reported that recently, regulators have issued requirements to make it clear that the special debt for the whole year of 2020 shall not be used in real estate-related areas such as land reserves and shed reform.。With regard to the areas that can be used, on the basis of the existing seven major areas, such as transportation infrastructure, energy, agriculture, forestry and water conservancy, ecological environmental protection, livelihood services, cold chain logistics facilities, municipal and industrial park infrastructure, new areas such as emergency medical and treatment facilities, public health facilities, and the renovation of old urban communities have been added.

The total amount of special debt in 2020 may be in the range of 3 to 3.5 trillion yuan.。On March 17, the National Development and Reform Commission said that it is necessary to expand the scale of special bonds, speed up preparations for special bond projects, and support the construction of infrastructure and public service projects with certain returns. Before the COVID-19 epidemic, the market expected the special debt line to be around 3 trillion yuan in 2020. Therefore, taking into account the policy statement, we expect the special debt line to fall in the range of 3 to 3.5 trillion in 2020. This means that in addition to the 1.29 trillion special debt quota that has been issued in advance, a large proportion of the remaining 1.7 to 2.2 trillion special debt, based on the 21st century economic report, will also be invested in infrastructure.

Under the New Policy of expanding the capacity of Special debt, the growth rate of infrastructure construction is expected to exceed 10%.。According to the statistics on the investment of special bonds issued in 2020, we assume that about 65% of the special bonds can be invested in infrastructure projects. Then assume that about 10 per cent of the 300 to 3.5 trillion special bonds can be used as capital, which can be leveraged four times. As a result, a total of 30 to 3.5 trillion special bonds can boost infrastructure investment of about 2.5 to 3 trillion. However, taking into account the crowding-out effect of government investment on private investment, as well as uncertainties such as the lack of projects, we set a crowding-out ratio of 25%. Driven by the new special debt policy, infrastructure investment will grow by about 10% to 12% in 2020.

Since the outbreak of COVID-19, the market has been expecting large-scale fiscal and monetary policies.。In the report "2020 China's economic rhythm changed by epidemic" on February 2, 2020, we expounded the logic of investment hedging consumption. On the one hand, because the epidemic was concentrated in the first quarter, consumption suffered the most. Investment and some consumption tend to move backward; on the other hand, the government's fiscal, monetary and real estate policies will also promote and guide this backward shift. The main drivers here are mainly financial support for infrastructure, as well as the relaxation of the marginal regulation of real estate.

The existing three axes for pulling infrastructure.Since mid-20200223, in order to strengthen the role of infrastructure supporting the economy, the government has launched a series of counter-cyclical policies, all of which are mainly launched in 2020 (see "the date of resumption of work is the start of the cycle" in 2019).

The first axe is the function of unlocking special debts as capital.。On June 10, 2019, the Central Office and the State Office issued the Circular on doing a good job in the issuance of local government special bonds and supporting project financing, allowing special bonds to be used as qualified capital for major projects, but due to the issue time, the issuance of special bonds in various places has already exceeded half, so the effect of this policy on infrastructure investment in 2020 is more obvious.

The second is to lower the minimum capital ratio for infrastructure projects.。The Circular of the State Council on strengthening the Capital Management of fixed assets Investment projects issued on November 27, 2019, for port, coastal and inland shipping projects, the minimum capital ratio of the project has been lowered from 25% to 20%. At the same time, for projects in other areas of deficiency, on the premise of achieving a reasonable level of income and strong solvency, the minimum capital ratio of the project is allowed to float by a range of no more than 5 percentage points.

The third axe is to issue a special debt line of 1.29 trillion in advance.。On November 27, 2019, the Ministry of Finance issued in advance 1 trillion yuan of part of the new special debt limit for 2020, clearly requiring that it be issued in advance to meet the construction needs of major local projects. shall not be used in land reserves and real estate-related fields, debt replacement and industrial projects that can be fully commercialized. At the same time, on February 11, 2020, the Ministry of Finance issued an additional 290 billion yuan special debt line.

We are now facing the second impact of the COVID-19 epidemic.。With the accelerated spread of the COVID-19 epidemic around the world, China is facing the great challenge of preventing "imported cases", which has also seriously hindered our international business activities, making the impact of the epidemic longer and more serious. Both China's own aggregate demand and overseas demand are expected to be difficult to avoid a longer sharp decline, which may put more downward pressure on our economy than expected.

Under pressure, economic growth may decline, but it is also necessary to focus on supporting employment.。The Prime Minister's statement at the National standing Committee on March 10, "as long as employment is stable this year, it is no big deal for the economic growth rate to be high or low." this shows that in the face of a high degree of uncertainty, we should undoubtedly seek truth from facts and make new plans and new considerations for the 2020 economic and social development goals and macro policy goals. If the new special debt policy is confirmed, it can greatly improve the efficiency of the use of financial funds, which can be regarded as a heavy blow to protect employment.