16 February 2019

POLICY WATCH: The business end of China’s urban drive

They sprang up across the country as legions of workers flocked into cities to industrialize the economy. Now, the push is on to transform these shantytowns — home mostly to low-income factory workers – into thriving centers with better infrastructure and higher-quality housing.

Some of the homes will be cleared and replaced with new housing projects while others will be upgraded.

To that end, Beijing gave the nod late last month for companies to sell corporate bonds to cover up to 70 percent of their investment in shantytown housing projects.

It’s hoped that the approval will widen the range of financing sources and lure more private firms into the projects. It’s also expected to boost spending on infrastructure and property, with likely biggest beneficiaries to be manufacturers of building materials like steel and cement.

The move is clearly aimed at supplementing government spending on shantytown upgrades and is part of broader efforts to move more people into cities as the nation shifts towards a consumption-driven economy.

For its part, the National Development and Reform Commission, the nation’s top economic planning body, has pledged to speed up and streamline application and approval procedures for these corporate bonds, according to a commission statement.

Local government-backed financing platforms and private companies are encouraged to play a role through an array of financing, including direct investment, build-and-transfer arrangements and bond issues.

The commission also said it will encourage municipal and county governments to subsidize interest rates for companies issuing bonds for these projects.

China embarked on large-scale shantytown overhauls in north China’s Liaoning province in 2004, and the scheme was expanded nationwide in 2008. By last year, 12.6 million households had been relocated from slums, with 7.5 million moving into new apartments, according to official data.

Guotai Junan Securities says the NDRC’s decision will result in 80 billion yuan (US$13.05 billion) in shantytown-related bonds in the next three months. And bonds issued by local government financing platforms will reach 40 billion to 50 billion yuan per month in the next few months, the investment bank said.

Encouraging an influx of corporate funds will ease the burden on government. Top policymakers have refrained from pumping money into infrastructure projects after the bitter lessons learned from the 4 trillion yuan stimulus package launched in the turmoil of the 2008 financial crisis. The stimulus left local governments grappling today with rising debt and falling revenue as economic growth stalled.

Nevertheless, Beijing allocated more than 150 billion yuan in subsidies to finance such housing projects between 2008 and 2012, and it plans to rebuild another 10 million such houses over the next five years.

– Contact the reporter at [email protected]



Freelance journalist

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