Core Viewpoint - The article discusses the strict management of special bonds in certain provinces, emphasizing that counties with issues must rectify them before issuing new bonds by 2025, in response to misuse of funds for other purposes [1][5]. Special Bond Management - In July, a local government financing official noted a significant reduction in special bond issuance in certain counties due to provincial restrictions, highlighting the strict enforcement of regulations against fund misappropriation [2]. - Counties facing restrictions often have issues such as slow progress on existing projects and incomplete preparations for new projects, leading to a halt in construction activities [3]. - Several provinces are intensifying management of special bond fund usage, requiring dedicated financial accounts for these funds and timely reporting of project-related information [4]. Misuse of Special Bonds - The strict management is a response to findings from an audit revealing that 1,325.97 billion yuan was misused, with 651.8 billion yuan being diverted to cover other expenses like "three guarantees" and repaying state-owned enterprise debts [6]. - The misuse of special bonds has been prevalent, especially in central and western regions, where local governments face significant fiscal pressures [6][15]. - Various methods of fund misappropriation have been identified, including circular funding through local government-controlled companies, which can obscure the actual use of funds [8][9]. Regulatory Framework - Despite previous regulations prohibiting the misuse of special bonds, such as the 2021 guidelines from the Ministry of Finance, local governments have continued to divert these funds [12][13]. - The 2024 guidelines from the State Council emphasize strict adherence to financial discipline and the establishment of accountability for misuse [12]. Implications of Regulation - The prohibition on misusing special bonds aims to ensure funds are used effectively for key projects, thereby stabilizing economic growth [19][20]. - While this may reduce flexibility for local governments in the short term, it is expected to enhance fiscal discipline and transparency in the long run [20]. - Changes in the allocation rules for special bonds may disproportionately affect financially constrained regions, which rely heavily on these funds for liquidity [20].

Core Viewpoint - The article discusses the tightening management of special bond funds by various provincial governments in China, emphasizing the need for stricter regulations to prevent misuse and ensure effective investment in infrastructure and public welfare projects [2][3][10]. Summary by Sections Management of Special Bonds - Multiple provinces have proposed stricter management of special bond fund usage, with the Ministry of Finance focusing on this as a key management area [2]. - New requirements for issuing special bonds include having public bidding announcements, winning bid notifications, construction contracts, and land use certificates [2][5]. Issues with Misuse of Funds - There have been instances of local governments misusing special bond funds for non-eligible projects, such as regular operational expenses and projects not yielding returns [6][9]. - A report indicated that by the end of 2023, 279.24 billion yuan of bond funds were either idle or misused, highlighting flaws in the selection and monitoring mechanisms for special bonds [6][7]. Financial Pressure on Local Governments - Local governments face significant financial pressure, leading to the misallocation of special bond funds to meet essential expenditures, known as the "three guarantees" (ensuring livelihood, salaries, and operational stability) [3][11][12]. - The overall public budget revenue showed a slight decline in early 2025, indicating a challenging fiscal environment for local governments [11][12]. Impact on Investment and Economic Stability - The increase in government bond financing and restrictions on the misuse of special bonds are expected to channel more funds into critical areas like infrastructure and public welfare, potentially stabilizing the economy [10]. - However, experts suggest that strict management of special bonds should be accompanied by supportive policies to address the underlying fiscal challenges faced by local governments [11].

Group 1 - The article highlights the tightening regulations on local government special bonds, requiring more comprehensive documentation and project readiness before funds can be allocated [1][2][3] - The aim of these stricter requirements is to prevent misuse of special bond funds and to ensure that investments are effectively contributing to economic stability [2][7] - There is a growing concern that while strict management is necessary, it must also consider the financial pressures faced by local governments, particularly in maintaining essential services [2][8][10] Group 2 - Local governments are now required to manage special bond funds through dedicated accounts to ensure that the funds are used specifically for their intended purposes [3][5] - Despite these regulations, instances of fund misappropriation have been reported, with special bond funds being redirected to cover operational costs or other non-eligible projects [4][6] - Recent audits revealed that a significant portion of raised bond funds remains unutilized or misallocated, indicating flaws in the selection and monitoring processes for special bond projects [5][9] Group 3 - The increase in government bond financing and restrictions on the misuse of special bonds are expected to channel more funds into infrastructure and public welfare projects, potentially aiding economic recovery [7][8] - However, experts suggest that strict controls on special bonds should be accompanied by supportive policies to address the underlying fiscal challenges faced by local governments [8][10] - The financial strain on local governments is evident, with declining revenues and increasing expenditure pressures, leading to a reliance on reallocating funds between projects [9][10]