Summary of Key Issues
Recent audit reports from several provinces have exposed four persistent problems with local special bonds: idle funds, improper use of funds, subpar project returns, and chaotic asset management. These issues are rooted in inadequate supervision and a need for improved systems. However, the overall risk associated with special bonds remains controllable for now. Experts suggest addressing these problems by reducing the issuance scale, improving existing systems, and strengthening comprehensive supervision throughout the entire lifecycle of the bonds.
1. Idle Funds
Phenomenon: A total of 1.707 billion yuan in special bonds from Guangdong, 1.4 billion yuan from Beijing, and 470 million yuan from Gansu remain idle and have not been allocated to actual projects (such as road construction or industrial park development).
Impact: The government is forced to pay interest on these funds (with an average interest rate of 2.73% as of June 2026, resulting in annual interest costs of approximately 46 million yuan for the 1.707 billion yuan). This not only wastes public money but also hinders infrastructure progress and economic growth.
Causes: Insufficient preliminary project preparation (e.g., lack of land approval or incomplete bidding processes), mismatch between the requested funding amount and actual needs, and slow project progress.
2. Improper Use of Funds
Phenomenon: 1.39 billion yuan in special bonds from Hubei has been used for corporate operations, 558,000 yuan from Hainan has been spent on utilities, salaries, or car rental fees, and 369 million yuan from Gansu was allocated ahead of schedule (with less than 100 million yuan actually used for the intended projects).
Impact: Special bonds are intended for long-term projects (such as bridge construction or hospital construction). Using them for everyday expenses or corporate operations defeats the purpose of issuing the bonds and may lead to a shortage of funds for the intended projects.
Causes: Some local governments face financial pressures and lack the ability to manage these funds effectively, or they do not understand the proper usage of special bonds.
3. Subpar Project Returns
Phenomenon: 29 projects in Inner Mongolia have been completed but are not in operation, resulting in 4.69 billion yuan in interest costs to be borne by the local government. Seven projects in Zhejiang have low utilization rates, and three projects in Shandong have generated no revenue at all.
Impact: Special bonds require projects to be self-sufficient in generating enough revenue to cover the principal and interest. When project returns fall short, local governments must make up the difference, increasing their financial burden.
Causes: Overly optimistic revenue forecasts during project application (without considering construction delays or increased operating costs), poor project management, or the selection of unviable projects (e.g., applying for projects on unsuitable land).
4. Chaotic Asset Management
Phenomenon: Assets from 31 projects in Guangdong have not been registered as fixed assets, 423 projects in Inner Mongolia have not been included in the monitoring system, and 28 projects have not undergone completion inspections (resulting in unclear asset ownership).
Impact: Without proper registration and monitoring, it is difficult to track asset performance and ensure that funds are used for their intended purposes, leading to potential asset loss or misappropriation.
Causes: Supervisory responsibilities are dispersed among multiple departments, and there is a lack of emphasis on asset management at the local level.
5. How to Solve These Problems?
Improving Systems and Strengthening Supervision:
1. System Adjustments:
- Reduce the issuance scale of special bonds to prevent the submission of unnecessary projects just to meet quota requirements.
- Lower the revenue requirements: Currently, project returns must cover 1.3 times the principal and interest; these requirements could be relaxed to allow for partial funding through general government funds (to prevent fraud).
- Increase the use of general bonds for non-profit projects (such as schools) to alleviate the burden on special bonds.
2. Strengthening Supervision:
- Strictly review project eligibility: Projects without approved land or operational plans should not be funded.
- Implement a comprehensive, closed-loop management system: Track every fund allocation from issuance to repayment, linking each payment to specific projects, assets, and returns.
- Hold accountable those who misappropriate or idle funds.
3. Actions by the Ministry of Finance:
- Conduct thorough supervision to ensure funds are used as intended and address any violations.
- Establish debt repayment reserves to prevent defaults by preparing sufficient funds in advance.
In summary, these long-standing issues with special bonds did not arise overnight. By focusing on system improvements and enhanced supervision, these problems can be gradually resolved, ensuring that the funds are used effectively to drive economic growth and infrastructure development.