Core Viewpoint - The audit reports from 17 provinces reveal significant issues in the management and usage of special bonds, despite their effectiveness in stabilizing investment and the economy. The problems include data inaccuracies, project delays, and underperformance in expected returns, which pose potential risks to local governments' ability to repay interest on these bonds [1][2][4]. Special Bond Issues Overview - The issuance of special bonds has been increasing, with an expected issuance of 4.4 trillion yuan this year. As of June, the total local government special bond debt reached approximately 34.8 trillion yuan, accounting for about 67% of total local debt [1]. - Audit reports highlight that some local governments have exaggerated project benefits to secure special bond funding, leading to mismanagement and inefficiencies [2][3]. Project Management Challenges - Many special bond projects are experiencing slow progress or have been halted, resulting in potential economic losses. For instance, in Sichuan, 10 projects were either not started or had been halted, with total investments of 150.8 billion yuan, of which 133.01 billion yuan were from bond funds [3]. - In Hebei, three projects were terminated due to inadequate land conditions, leading to a loss of 14.5 million yuan in upfront costs [3]. Monitoring and Data Integrity Issues - The special bond monitoring system is found to be flawed, with discrepancies between reported and actual expenditures. This hampers the ability of financial authorities to conduct comprehensive risk monitoring [4]. Root Causes of Problems - Local governments often lack the necessary project management capabilities and risk assessment skills, leading to inflated project proposals and unrealistic revenue expectations [7][8]. - The decreasing number of public welfare projects that can cover interest payments has contributed to the issue of overstated project benefits [8]. Policy Responses and Recommendations - The State Council has introduced measures to optimize the management of special bonds, including a "negative list" approach to broaden the scope of eligible projects and allow for more flexible funding arrangements [9]. - Recommendations include enhancing project feasibility assessments, involving financial institutions in preliminary evaluations, and shifting from a "funding for projects" to a "project-driven funding" approach to ensure effective allocation of resources [10][11].