Infrastructure investment funded by local governments’ special revenue bonds (SRBs) will become a key instrument of countercyclical fiscal policy support to offset headwinds from property tightening and the trade war for the rest of 2019 and into 2020. Despite a larger SRB quota for 2019, a detailed analysis of SRB prospectus documents indicates bond proceeds were largely channeled into land and property development this year, rather than infrastructure spending. Those priorities will reverse next year as 2020 is the final year of the shantytown redevelopment program, and Beijing has pledged to limit the future use of SRB proceeds for land and property projects. The shift in funding will provide only a modest degree of countercyclical support for the broader economy, but infrastructure spending is likely to improve.
