Core Viewpoint - The issuance of local government special bonds directed towards government investment funds marks a significant shift in investment strategy, with a total scale exceeding 800 billion yuan, reflecting a policy change that allows for broader investment areas beyond traditional infrastructure projects [1][2]. Group 1: Policy Changes - The policy change effective from December 2024 allows special bonds to be used for projects not included in a "negative list," enabling investments in emerging industries such as information technology, new materials, and digital economy [1][2]. - This shift is seen as a response to the dual pressures of local fiscal constraints and national strategic directives, aiming to leverage social capital for industrial transformation and technological innovation [2]. Group 2: Financial Implications - The average DPI (Distributions to Paid-In) of government-guided funds is reported to be only 0.7, raising concerns about the investment effectiveness of special bonds directed towards these funds [3]. - The primary purchasers of these bonds are expected to be banks, insurance companies, and bond funds, which typically have low-risk appetites and favor government-backed securities [3][5]. Group 3: Project Selection and Management - Local governments possess a natural advantage in project selection, having access to lists of high-quality enterprises, which allows for effective identification of projects that align with policy goals and risk requirements [4]. - Despite the advantages in project selection, the post-investment effectiveness is still influenced by market conditions and company performance, necessitating robust post-investment management and ongoing policy support [5]. Group 4: Future Outlook - The large-scale issuance of special bonds for government investment funds represents an innovative financing channel independent of traditional fiscal budgets, but the future scale of such issuances and their impact on government investment fund development remains to be observed [5]. - The success of bond issuance is contingent on economic conditions, which will affect financial institutions' willingness to allocate resources, although current conditions suggest a low-risk environment for short-term investments [5].

Policy Financial Tools Dynamics - New policy financial tools have been established with a total issuance of 500 billion yuan, focusing on key areas such as technological innovation, consumption expansion, and stabilizing foreign trade [2][3] - The issuance breakdown includes 250 billion yuan from the China Development Bank, 150 billion yuan from the Agricultural Development Bank, and 100 billion yuan from the Export-Import Bank, supporting over 2,000 projects [3] Local Government Debt Issuance - From January to September 2025, local governments issued a total of 36,857 billion yuan in new special bonds, with Guangdong province alone exceeding 400 billion yuan [6][7] - The remaining quota for new special bonds nationwide is less than 1 trillion yuan, with an issuance progress of 83.8% against the planned 4.4 trillion yuan for the year [6][7] New Policies Released - The Central Committee has published recommendations for the 15th Five-Year Plan, emphasizing the need to expand effective investment and improve investment efficiency [13][14] - The Ministry of Commerce and nine other departments have released measures to boost service consumption and expand domestic demand, focusing on financial support [13][15] - The National Development and Reform Commission has issued measures to strengthen the cultivation of innovative enterprises in the digital economy [13][16] Pilot Applications - The Ministry of Finance and the Ministry of Commerce have initiated pilot projects for new consumption formats and international consumption environment construction, targeting major cities for support [17][18] - Financial support for pilot cities includes subsidies of up to 4 billion yuan for super-large cities and 2 billion yuan for other cities, distributed in two batches based on performance evaluations [18][19]

Summary of Key Points 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core View of the Report The fiscal revenue growth rate continues to improve, with an enhanced contribution from tax revenues. The overall fiscal expenditure progress is slow, but the decline in infrastructure - related expenditures has narrowed. Government - funded funds show a divergence between revenue and expenditure, with revenue lagging behind expenditure. In the fourth quarter, the implementation of incremental fiscal funds will help the economy operate smoothly, and more incremental policies are still expected [3][4][5]. 3. Summary by Relevant Catalogs 3.1 Fiscal Revenue Growth Rate Continues to Improve, Tax Revenue Contribution Increases - The growth rate of general public budget revenue from January to September reached 0.5%, 0.2 percentage points higher than the previous value, and improved for three consecutive months. The central government's monthly revenue growth rate improved significantly, and the decline in cumulative growth rate narrowed to - 1.2%, while local fiscal revenue maintained positive growth at a cumulative rate of 1.8%. The fiscal revenue growth rate was slightly higher than the annual budget target by 0.1%, but the completion progress was 74.5%, lower than the historical average [11]. - Tax revenue growth significantly supported the improvement of fiscal revenue, while non - tax revenue growth declined sharply, turning into a negative drag on revenue growth. From January to September, the cumulative year - on - year growth rate of tax revenue was 0.7%, reaching the highest value of the year. Non - tax revenue had negative single - month growth for five consecutive months, and the cumulative growth rate turned slightly negative at - 0.4% [17]. - In terms of tax revenue structure, VAT, corporate income tax, domestic consumption tax, individual income tax, and stamp duty all showed positive growth, while land and real - estate - related tax revenue decline was narrowing [18]. 3.2 Overall Expenditure Progress is Slow, Decline in Infrastructure - Related Expenditure Narrows - From January to September, the year - on - year growth rate of fiscal expenditure was 3.1%, the same as the previous value and lower than the annual budget target of 4.4%. The central government's expenditure growth rate dropped to a new low of 7.3% for the year, while the local government's expenditure growth rate was 2.4%, 0.1 percentage points higher than the previous value. The general public budget expenditure completion progress from January to September was 70.1%, the lowest in the past five years [20]. - In terms of expenditure structure, people's livelihood - related expenditures remained the focus, and infrastructure - related expenditures improved. Social security and employment expenditures maintained a growth rate of 10%, and infrastructure - related expenditures such as energy conservation and environmental protection and transportation had a growth rate close to 20% for two consecutive months [21]. 3.3 Government - Funded Funds' Revenue and Expenditure Diverge, Revenue Lags Behind Expenditure - From January to September, the government - funded funds' revenue decreased by 0.5% year - on - year, lower than the annual budget growth target of 0.7%. The decline in land transfer fees was the main reason for the negative growth. The government - funded funds' expenditure increased by 23.9% year - on - year, higher than the annual budget target of 23.1%. The revenue completion progress was 49.1%, and the expenditure completion progress was 60% [25]. - The issuance of local government special bonds accelerated, with the completion progress of new special bonds in September reaching about 83.6%, still slow in a five - year perspective [25]. 3.4 Incremental Funds are Implemented to Fill Gaps and Expand Investment In September, the National Development and Reform Commission established a new policy - based financial instrument worth 500 billion yuan, and the Agricultural Development Bank of China has disbursed nearly 100 billion yuan. On October 17, the Ministry of Finance issued another 500 billion yuan in carry - over quotas. The implementation of incremental funds will help expand investment and support the stable operation of the economy in the fourth quarter. More incremental policies are still expected [5][30].

1. Report Industry Investment Rating There is no information provided regarding the report industry investment rating. 2. Core Viewpoints of the Report - The bond market is still "widely bearish," but it is likely to be a bull market. The upper limit of bond market interest rates is clear. The 10 - year Treasury bond rate above 1.8% has absolute value, and the downward space of bond market interest rates is at least 20bp. There are opportunities for the narrowing of the spreads of ultra - long bonds and variety spreads [2]. - The logic of the upper limit of interest rates comes from the weak fundamentals, asset shortage, and the need to cooperate with fiscal policies. The large - scale purchase of 7 - 10y Treasury bonds by large banks in mid - September may reflect the policy intention of maintaining stability in the bond market [2][8]. - Regarding the lower limit of interest rates, the report is firmly bullish. The 1.7% is not an important resistance level. Interest rates are expected to reach new lows under the influence of factors such as the central bank's possible restart of Treasury bond trading, regulatory policies being less than expected, and cross - year allocation [11][12]. - The term spreads in the bond market since 2024 have generally widened, different from the previous narrowing trend. In the future, with the improvement of market sentiment, there will be opportunities for spread compression. The impact of the 500 billion yuan local government debt limit on the bond market is expected to be limited in the short term [3]. 3. Summary According to the Table of Contents 3.1 Is It a Sideways Market or a Bull Market? - There are still significant differences in the market. The short - term view of most investors is that the downward space of interest rates is limited. The lower limit of the 10 - year Treasury bond active bond rate may be 1.7%, and the upper limit is around the previous high of 1.83% [7]. - The long - term view believes that short - term Sino - US trade frictions are beneficial, and the negative factors in the third quarter are weakening. The short - term view believes that Sino - US relations may improve, the stock market is still strong, and regulatory policies will affect the bond market [7]. - The upper limit of interest rates: The 10 - year Treasury bond above 1.8% and the 30 - year Treasury bond above 2.1% have absolute allocation value. The upper limit comes from the weak fundamentals, asset shortage, and the large - scale purchase of 7 - 10y Treasury bonds by large banks in mid - September, which may be a manifestation of the central bank's intention to maintain stability in the bond market and cooperate with fiscal policies [8]. - The lower limit of interest rates: The report is firmly bullish. The 1.7% is not an important resistance level. Interest rates are expected to reach new lows under the influence of factors such as the central bank's possible restart of Treasury bond trading, regulatory policies being less than expected, and cross - year allocation. In extreme cases, the 10 - year Treasury bond rate can refer to the pricing at the beginning of this year plus points, that is, OMO + 10bp [11][12]. 3.2 How to View Spreads in a Sideways Market? - By tracing the sideways markets since 2022 with the 10 - year Treasury bond yield as the standard, 7 time periods are sorted out. Since 2024, the term spreads in the sideways market have generally widened, mainly because the bond bull market since 2024 is usually accompanied by supply pressure or the central bank's attention to long - term interest rates, making the mid - short end relatively safer and more certain [19][24]. - In terms of variety spreads, the spread between policy - financial bonds and Treasury bonds usually narrows, especially at the long end. The credit spreads have decreased significantly in most sideways markets [25]. - Since the end of August 2025, the spread between 5 - year and 2 - year Treasury bonds has declined, while the spreads between 10 - year and 5 - year, and 30 - year and 10 - year Treasury bonds have increased, and the variety spreads have increased rapidly. The reasons include large - scale purchases of medium - term Treasury bonds by large state - owned banks, the reduction of fund duration by public funds, and the weak buying of ultra - long bonds by large and medium - sized banks [31][33]. - Looking forward, the 30 - year Treasury bond rate has a greater downward space, and the variety spreads may also narrow. Insurance funds may increase their purchases of ultra - long bonds when the Treasury bond rate rebounds above 2.1%. With the improvement of bond market sentiment and the end of the cross - quarter period, the buying power of funds and rural commercial banks may return, driving the compression of the spread between policy - financial bonds and Treasury bonds [36]. 3.3 How to View the Impact of 500 Billion Yuan of Local Government Debt Balance on the Bond Market? - In the absence of other incremental policy linkages, the impact of 50 billion yuan of special bonds on the bond market is limited. In 2022, the interest rate fluctuated upward due to a series of incremental policies, including fiscal, monetary, and structural policies [37][38]. - This 500 billion yuan of funds is likely to be issued in the form of new special bonds. Currently, the balance of general bonds is not large, and the use of this fund is more suitable for new special bonds [43]. 3.4 Bond Market Interest Rates First Rose and Then Fell - This week, the central bank's open - market operations changed from net investment to net withdrawal, but the liquidity in the market became looser. The bond market yield curve flattened as a whole, and the 10 - year Treasury bond yield first rose and then fell, rising 0.40bp to 1.82% [3][45]. - The reasons for the fluctuations in bond market interest rates include factors such as "TACO trading," good export performance, increased redemption pressure, market speculation on public fund fee reform, and the possible issuance of local government bonds in advance in 2026 [45]. 3.5 The Scale of Wealth Management Products Slightly Increased - As of October 12, the scale of existing wealth management products reached 30.9 trillion yuan, with a weekly increase of 120.652 billion yuan. From October 6 to October 12, the newly issued wealth management products totaled 14.68 billion yuan [55]. - In the second week of October, the scale of fixed - income products rebounded. By product type, the scale of cash - management products increased by 15.8 billion yuan, and the scale of fixed - income products increased by 41.7 billion yuan. By product risk level, the scale of first - level (low - risk) products increased by 5 billion yuan [59][60]. - The net - breaking rate of wealth management products decreased slightly last week. As of October 15, the average 7 - day annualized yield of 370 money funds was 1.05%, and the average 7 - day annualized yield of 265 cash - management products was 1.35% [60][62]. 3.6 Duration - This week, the duration of public funds decreased at first and then increased. From October 13 to October 17, the duration of public funds increased by 0.035 to 2.382 compared with October 10, and the weekly average was 2.364 [64]. - This week, the divergence of duration decreased, and the market's consensus expectation increased slightly. On October 17, the divergence of public fund duration decreased by 0.014 to 0.321 compared with October 10 [64].

Group 1 - The core viewpoint of the report indicates that the net financing scale of urban investment bonds has been negative for seven consecutive months, with a net repayment scale of 693.49 billion yuan in September 2025, reflecting a tight financing rhythm and continuous contraction of net supply [1][8][11] - Only six provinces have shown positive net financing since the beginning of the year, with Guangdong being the largest at 140.21 billion yuan, while Jiangsu has the largest net repayment scale at nearly 1200 billion yuan [1][11][15] - The report highlights that Heilongjiang has the highest net repayment ratio, reaching 52.01%, indicating that over half of its outstanding urban investment bonds have been repaid [1][13][15] Group 2 - The report emphasizes the encouragement of policies to foster innovative, specialized, and unique small and medium-sized enterprises (SMEs), with a focus on expanding social capital investment in various sectors of the national economy [3][32][40] - Recent trends show an expansion in production and sales in key manufacturing sectors, with the manufacturing purchasing managers' index (PMI) rising to 49.8% in September, indicating a slight acceleration in overall economic output [32][33][34] - The report notes that the government is actively supporting SMEs through various funds aimed at nurturing and investing in distinctive and high-potential enterprises, which is expected to enhance the development of high-tech manufacturing [3][32][40] Group 3 - The report outlines investment strategies focusing on regions with strong economic fundamentals and effective debt management, particularly in major economic provinces like Guangdong, Jiangsu, and Zhejiang, suggesting a duration extension to 5 years for investments [43][46] - It also recommends paying attention to areas where significant debt resolution policies or funding have been implemented, with a suggested duration of 3-5 years for investments in regions like Chongqing and Tianjin [46][47] - The report highlights the importance of local government support and industrial foundations in cities with strong strategic significance, advising a shorter duration of 2-3 years to mitigate risks from potential interest rate fluctuations [47][48]

Economic Overview - The economic growth momentum in China has declined due to extreme weather, policy adjustments, and external factors since Q3 2023 [1] - Fixed asset investment growth for the first eight months of the year is at a record low of 0.5%, while retail sales growth has dropped to 3.4%, indicating a potential further slowdown in Q4 [1] - The impact of high U.S. tariffs on global trade and China's exports may become more pronounced in Q4, increasing the necessity for policies to stabilize growth and employment [1] Policy Measures - Analysts expect a new round of growth-stabilizing policies to be introduced in Q4, focusing on fiscal expansion, monetary easing, and boosting consumption and the real estate market [2][4] - The government has a relatively low debt ratio compared to other major economies, providing ample policy space for intervention [2] Fiscal Policy - Proposed fiscal measures include establishing new policy financial tools estimated at 500 billion yuan to support infrastructure investment, which could leverage around 6 trillion yuan in total investment [4][5] - The issuance of special government bonds and increasing funding for "two new" initiatives (equipment updates and consumption subsidies) are also anticipated to stimulate consumption [5] - Local government land use rights revenue has decreased by 4.7%, necessitating additional special bonds to support infrastructure and affordable housing projects [5][6] Monetary Policy - There is a possibility of new interest rate cuts and reserve requirement ratio reductions by the central bank in Q4 to enhance liquidity and stimulate lending [7] - The current low inflation environment allows for a more accommodative monetary policy without immediate concerns about high inflation [7] Real Estate and Consumption - The real estate sector is expected to see comprehensive support policies in Q4, including expedited loan approvals for key projects and potential tax reductions for transactions [8][9] - Consumption policies may expand to include a wider range of goods and services, with potential increases in "trade-in" subsidies to stabilize consumer spending [9]

Core Viewpoint - The article discusses the "6+4" local government debt resolution plan for 2024, which primarily targets the 14.3 trillion yuan of hidden debts recognized by the central government, emphasizing the need to address overdue payments to enterprises for cash flow recovery [1][9][10]. Summary by Sections Government Debt Classification - Government debt is classified into explicit debt (82.1 trillion yuan), recognized hidden debt (10.5 trillion yuan, reduced by 3.8 trillion yuan from 2023), government payment responsibilities, and debts of state-owned enterprises [2][11][12]. Incremental Policies for Debt Clearance - Key policies include allocating special bond quotas to clear enterprise overdue payments and allowing local bonds to support government-related costs in existing PPP projects [3][13][19]. Special Bonds for Overdue Payments - In 2024, 4.4 trillion yuan of new special bonds will be allocated to repay overdue payments, with an estimated 400 billion yuan specifically for this purpose. The average proportion of special bonds for clearing debts in seven provinces is 23%, with a national estimate of around 10% [3][14][15]. Changes in Special Bond Issuance - By now, provinces have issued approximately 1.2 trillion yuan in special bonds for debt clearance, exceeding initial plans by 400 billion yuan. There is a notable shift in issuance among provinces, with significant increases in regions like Beijing, Shanghai, and Guangdong [3][15][17]. Distinction of Current Special Bonds - The current special bonds for enterprise overdue payments are distinct from previous allocations, focusing solely on overdue payments rather than mixing with other project costs [4][17][18]. Support for PPP Projects - Local bonds are now permitted to support government costs in existing PPP projects, which is crucial given the total government expenditure responsibility for PPP projects is projected to reach 14.34 trillion yuan by 2026 [5][19][20]. Land Purchase Bonds - Special bonds are also allowed for repurchasing idle land, with 3.131 billion yuan issued for this purpose, which helps alleviate local debt pressure [6][22][23]. Impact on Enterprises - Previous debt clearance policies have benefited infrastructure-related enterprises, but the transmission efficiency remains slow. The pressure on accounts receivable in small and micro enterprises continues to be the highest among industries [7][25][26]. Future Policy Directions - The article suggests that future policies will likely continue to focus on improving cash flow for enterprises and addressing overdue payments, with potential expansions in the scale of special bonds for these purposes [8][31][32].

Core Viewpoint - Local governments are beginning to repay debts early, with a focus on saving interest costs, following the trend set by local financing platforms that have already started early repayment of urban investment bonds [1][4]. Group 1: Early Repayment of Bonds - The Shaanxi Provincial Finance Department announced plans to repay part of its government bonds early, including a 60 million yuan repayment of a 6 billion yuan bond issued in 2019 and a 30 million yuan repayment of an 18.22 billion yuan bond issued in 2020 [2]. - Beijing has also been a pioneer in early repayment of government bonds, saving over 70% in interest expenses, and has repaid 39 million yuan in 2023, 4.976 billion yuan in 2024, and 145 million yuan by August of the current year [3]. Group 2: Cost-Saving Considerations - The primary reason for early repayment is to save on interest costs, as the interest rates on old debts are significantly higher than current rates [4]. - As of June 2025, the average issuance rate for local government bonds was 1.80%, a decrease of 54 basis points year-on-year, making early repayment financially advantageous for governments [5]. Group 3: Types of Bonds and Repayment Sources - Local government bonds are categorized into general bonds and special bonds, with special bonds being used for revenue-generating projects. Special bonds accounted for 65% of the total local government debt of 47.5 trillion yuan by the end of 2024 [6]. - The funds for early repayment are derived from the asset disposal income of the projects corresponding to the special bonds, and both Shaanxi and Beijing used competitive bidding to determine repayment prices [7]. Group 4: Market Impact and Challenges - The early repayment of bonds is expected to align with market prices, allowing creditors the option to hold or trade their bonds in the secondary market if they find the terms unfavorable [8]. - The limited number of local governments opting for early repayment is attributed to constrained fiscal space and the difficulty in assessing the market value of fixed assets generated from special bond investments [9].

Group 1: Open Market Operations - The central bank conducted a 7-day reverse repurchase operation on September 5, with a fixed rate of 1.40% and a total bid amount of 188.3 billion yuan, resulting in a net withdrawal of 594.6 billion yuan for the day [3] - The total net withdrawal for the week was 12,047 billion yuan, with 10,684 billion yuan of reverse repos maturing from September 8 to 12 [3] Group 2: Funding Conditions - The interbank funding market remains stable and slightly loose, with overnight repurchase weighted rates around 1.31% and overnight quotes at approximately 1.30% [5] - Non-bank institutions are borrowing overnight against certificates of deposit and credit bonds, with latest quotes around 1.45%-1.47% for overnight and 1.45%-1.46% for seven-day funds [5] Group 3: Interbank Certificates of Deposit - The latest transaction rate for one-year interbank certificates of deposit is at 1.66%, showing a slight increase from the previous day [8] Group 4: Bond Yield Movements - Major interbank bond yields have collectively risen, with one-year government bonds at 1.3925%, two-year at 1.75%, and ten-year at 1.7700% [9] Group 5: Government Debt Issuance - The Ministry of Finance plans to issue 1,570 billion yuan in two-year bonds and 1,500 billion yuan in seven-year bonds on September 12 [19] - Local governments are also set to issue special bonds, with Guangxi planning to issue 362.4454 billion yuan in local debt on September 12 [15] Group 6: Global Macro Developments - Japan is increasing its minimum wage by 6.3% to a record 1,121 yen (approximately 7.56 USD), which supports the wage-price cycle and provides backing for potential interest rate hikes by the Bank of Japan [17]

Core Viewpoint - The Ministry of Finance has introduced new regulations to enhance the management and utilization of local government special bonds, aiming to improve financial reporting and accountability for projects funded by these bonds [2][3]. Group 1: Regulations and Implementation - The new regulations, titled "Interim Provisions on Accounting Treatment Related to Local Government Special Bonds," will take effect on January 1, 2026, and are designed to standardize accounting practices for project units receiving special bond funds [2][3]. - The regulations specify accounting treatment for both administrative and enterprise project units, ensuring that financial conditions are accurately reflected and management responsibilities are enforced [3]. Group 2: Financial Management and Reporting - Project units are required to prepare "Special Bond Project Investment Tables" and "Special Bond Fund Repayment Situation Tables," which will include comprehensive information on the amounts received, repaid, and spent related to special bond funds [4]. - The lack of a unified information reporting and aggregation system has made it difficult to assess the overall status of special bond projects; the new reporting requirements aim to provide a complete lifecycle view of each project, facilitating better macro management and decision-making [4]. Group 3: Current Status of Special Bonds - The issuance of special bonds has surged, with a new issuance scale reaching 4.4 trillion yuan this year, and as of July, the total local government special debt stood at approximately 35.5 trillion yuan, accounting for 67% of the total local government debt [2].