Exclusive: China plans bond overhaul to fund $6 trillion urbanization - sources
China plans major bond market reform to raise the money the ruling Communist Party needs for a 40 trillion yuan ($6.4 trillion) urbanization program to buoy economic growth and close a chasm between the country's urban rich and rural poor.
The Party aims to bring 400 million people to cities over the next decade as the new leadership of president-in-waiting Xi Jinping and premier-designate Li Keqiang seek to turn China into a wealthy world power with economic growth generated by an affluent consumer class.
The urban development would be funded by a major expansion of bond markets, sources with leadership ties, and a senior executive at one of China's "Big Four" state banks, who was formerly at the central bank, told Reuters.
"The urbanization drive will push the domestic capital market liberalization agenda," the senior bank executive said on condition of anonymity. "Urbanization is Li Keqiang's big project. He has to get it right and he is willing to pursue innovation to make it a success."
Set to be confirmed as premier at the end of the annual meeting of China's rubber-stamp parliament, which opens next week, Li must find ways to pay for the urban development that he has made a policy priority.
Central and local governments, as well as bank loans, will fund the costs, the sources said. But, sweeping reforms to create a fully-functioning municipal bond market, boost corporate and high-yield bond issuance and actively steer foreign capital into the sector, are crucial to raising the sums of money China will need, they added.
Despite its ranking as the second-largest economy globally after three decades of stellar growth, China remains an aspiring middle-income country riven with inequality and dependent on state-backed investment.
"If we continue to walk down the path of government spending, it'll be like wearing new shoes, but walking the old road," a source with leadership ties said, requesting anonymity to avoid repercussions for speaking to foreign media without authorization.
BANK DEBT DEPENDENCY
China's economy largely relies on state-directed bank lending to fund investment projects, but the massive 40 trillion yuan outlay envisaged to urbanize the rural outskirts of some 270 cities is far beyond the means of the current system....MORE
