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New regulations on local government special bonds: Opportunities and challenges for financing cultural and tourism projects

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2025-01-19

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Editor-in-Chief | Yang Ming

Editor | Liu Kaiye

Source | Sanchuanhui Culture and Technology

Recently, the General Office of the State Council officially issued the "Opinions on Further Optimizing and Improving the Management Mechanism of Local Government Special Bonds," which details 17 specific measures in seven aspects. This move marks a solid step forward for China in the field of fiscal policy reform. This article will conduct an in-depth interpretation from the perspectives of the policy's background, core content, and the opportunities and challenges it brings to investment in the cultural and tourism sector, in order to provide investment and decision-making references for the high-quality development of the cultural and tourism industry.

In recent years, with the continuous transformation and development of China's economy, the fiscal pressure on local governments has been increasing. In this context, special bonds, as a key policy to solve the problems of local government finances, have played an irreplaceable role in promoting infrastructure construction, promoting industrial upgrading, and ensuring people's livelihood and well-being. However, in actual operation, the management mechanism of special bonds still has some problems that need to be solved urgently, such as low capital use efficiency, cumbersome project approval procedures, and insufficient supervision.

In order to solve these problems, the General Office of the State Council recently issued the "Opinions on Further Optimizing and Improving the Management Mechanism of Local Government Special Bonds" (hereinafter referred to as the "Opinions"), which proposed 17 specific new measures to comprehensively improve the management level of local government special bonds from seven different perspectives. The issuance of this policy not only marks another major innovation in China's fiscal policy field, but also brings new changes to the investment of special bonds in the cultural and tourism industry.

What are the outstanding highlights of the special bond management mechanism?

This time, the "Opinions on Further Optimizing and Improving the Management Mechanism of Local Government Special Bonds" issued by the General Office of the State Council points out that it is necessary to increase support for the cultural and tourism, ecological environmental protection, and people's livelihood sectors, and to promote the high-quality development of related fields through the effective use of special bonds.

(1) Continued expansion of investment areas and scope of registered capital

Among them, the biggest highlight is the implementation of a "negative list" management system for the investment areas of special bonds, which clearly includes projects with absolutely no returns, grand buildings, image projects and vanity projects, real estate development except for affordable housing and land reserves, and commercial facilities and general competitive industrial projects related to the cultural and tourism sector, such as theme parks and imitation ancient cities (towns, villages, streets), in the "prohibited projects." At the same time, it is clear that projects not included in the "negative list" can apply for special bond funds, which helps to broaden the scope of use of special bonds.

At the same time, the "Opinions" further increases the proportion of local government special bonds used as project registered capital, increasing the upper limit of the scale of special bonds that can be used as project registered capital from the original 25% of the scale of special bonds used for project construction in the province to 30%, and clearly stipulating unified management at the provincial level. This measure helps to increase project registered capital, reduce project financing costs, ensure that good and large projects in various places receive key support, and accelerate the speed of key project construction.

(2) Continuous strengthening of the balance between income and expenditure of special bond projects

The "Opinions" proposes that in optimizing the allocation of special bond quotas, the principle of positive incentives should be adhered to, comprehensively considering major strategic needs, regional debt risks, financial conditions, management levels, and project funding needs, to ensure that quotas are tilted towards regions with sufficient preparations, high investment efficiency, and good capital use efficiency. At the same time, a dynamic evaluation mechanism and information disclosure system should be established to ensure the fairness, justice, and transparency of the allocation process.

In terms of the balance between financing income and expenditure of special bond projects, it is required that provincial governments should bear the ultimate responsibility. For projects whose income is insufficient to repay principal and interest, local governments can arrange fiscal subsidies or other income in installments according to law to ensure that debts are repaid in full and on time. In addition, the "one case, two documents" system should be improved, standardized templates should be promoted, financial reports and legal opinions should be simplified, intermediate links and costs should be reduced, and the efficiency of project application and approval should be improved.

(3) Significantly enhanced investment enthusiasm of local governments

In order to optimize the examination and management mechanism of special bond projects, the "Opinions" proposes to delegate the authority to examine special bond projects. Ten provinces and cities, including Beijing, Shanghai, Jiangsu, Zhejiang (including Ningbo), Anhui, Fujian (including Xiamen), Shandong (including Qingdao), Hunan, Guangdong (including Shenzhen), and Sichuan, as well as Hebei Xiong'an New Area, which undertakes major national strategic areas, will be selected to carry out pilot projects of "self-examination and self-issuance" of special bond projects, supporting major economic provinces in playing a leading role.

These regions were selected as pilot areas mainly based on their good management foundation and advantages in economic size. Pilot areas can organize and screen projects in their own regions on a rolling basis. After being reviewed and approved by the provincial government, they only need to be filed with the National Development and Reform Commission and the Ministry of Finance before they can immediately organize the issuance of special bonds. This policy not only effectively enhances the local autonomy, but also greatly improves the investment enthusiasm of major economic provinces, which has a positive effect on stabilizing the regional economy and optimizing the local industrial structure.

(4) Comprehensive supervision mechanism has been comprehensively optimized

In order to ensure the safe and effective use of special bond funds, the "Opinions" requires the establishment of a sound fund use supervision mechanism. This includes accelerating the issuance progress of special bonds, the use of funds and the progress of project construction, strengthening supervision and inspection of the implementation of projects, ensuring that funds are used in accordance with their intended purpose and plan; regularly conducting risk assessments of the issuance, use, and repayment of special bonds at various stages, and promptly identifying potential risks; increasing the intensity of supervision and accountability, and strengthening the investigation and punishment of illegal and irregular behaviors to maintain the seriousness of fiscal discipline.

In order to ensure the effective implementation of the special bond management mechanism, the "Opinions" requires the improvement of relevant laws, regulations, and policy systems. This includes formulating and revising relevant laws and regulations, clarifying the legal status and rights and obligations of various aspects of the issuance, use, and repayment of special bonds; formulating and improving relevant policies and measures to provide policy support and guarantees for the issuance and use of special bonds; and strengthening the publicity and training of relevant laws, regulations, and policy measures to improve the understanding and understanding of special bonds by all sectors of society.

Opportunities and Challenges Brought by New Regulations to the Cultural and Tourism Sector

The cultural and tourism sector is a typical industry with high capital demand and a long investment return cycle. In the investment process, cultural and tourism enterprises rely solely on their own surplus accumulation, which is difficult to meet the needs of development. Therefore, as one of the important investment areas of local government special bonds, the issuance of the "Opinions" this time brings new opportunities and challenges to the investment of special bonds in the cultural and tourism sector.

(1) Opportunities under the policy's favorable wind

The "Opinions" not only clarifies the overall requirements and basic principles of special bond management, but also proposes specific measures from multiple aspects such as project selection and approval, fund use supervision, risk prevention and control, and information disclosure and transparency improvement. The implementation of these optimized mechanisms will play a greater role in promoting the use of special bonds to support the construction of infrastructure in the cultural and tourism sector and promote industrial transformation and upgrading.

First, the tourism and culture sector achieves a new breakthrough in investment. As an important part of the national economy, the tourism and culture industry has received strong support from national policies in recent years. Since 2017, when the culture, sports, and tourism industries were first included in the scope of special bond investment in the social sector, the national level has successively issued more than 10 policy documents on special bonds in the tourism and culture sector. From the initial encouragement of eligible projects to issue special tourism and culture bonds to the "non-prohibition" principle clearly proposed in this Opinion, it marks a further reduction in the entry threshold for investment in the tourism and culture sector and a wider investment scope.

Second, high-quality tourism and culture projects become preferred choices for bonds. With the continuous optimization and improvement of the special bond management mechanism, the application and approval process for tourism and culture projects will focus more on project quality and efficiency assessment. This means that high-quality tourism and culture projects with real development potential, closely aligned with market demand, and capable of generating significant economic and social benefits will have a better chance of obtaining the favor and financial support of special bonds. This will undoubtedly greatly promote the sustainable and healthy development of the tourism and culture industry, enhance the competitiveness and market influence of the entire industry, and inject strong impetus into the prosperity of the tourism and culture industry.

Third, the implementation of key tourism and culture projects is guaranteed. With the stable injection of local special bond funds, it can not only effectively alleviate the funding difficulties faced by tourism and culture projects in the initial stage of construction but also accelerate the smooth progress of projects according to the plan. In addition, the Opinion also includes emerging industrial infrastructure such as information technology, the digital economy, and the low-altitude economy, which are closely related to the tourism and culture industry, as well as provincial-level and above industrial park infrastructure, in the scope of special bonds used as project capital. These measures will provide strong financial guarantees for tourism and culture projects from the planning stage to the operation stage, and the project legal person will not bear any interest or debt burden for this part of the funds.

Fourth, the financing channels for tourism and culture projects are becoming increasingly diversified. The Opinion proposes various innovative ways to broaden the issuance channels of special bonds, providing the tourism and culture industry with more financing options. For example, raising funds through cooperation with financial institutions to issue wealth management products can reduce financing costs and improve financing efficiency; exploring the establishment of new financing models such as special bond investment funds can provide diversified financial support for tourism and culture projects. This will help alleviate the problems of difficulty and high cost of financing in the tourism and culture industry and improve the reserve scale of major tourism and culture industry projects.

(II) Challenges in Practical Application

Studies have found that although the Opinion provides important support for special bond investment in the tourism and culture sector, there are still four challenges in its practical application.

First, the challenge of project selection and compliance. With the clarification of the "negative list" management system, the selection of tourism and culture projects needs to be more cautious to ensure that they do not touch prohibited areas, such as unprofitable projects, theme parks, and imitation ancient cities (towns, villages, streets). It not only requires tourism and culture enterprises to have keen market insight and project planning capabilities but also requires conducting project feasibility studies, demonstrations, and risk assessments to ensure that the project meets the issuance requirements and compliance conditions of special bonds. This is a considerable challenge for some tourism and culture enterprises with weaker strength and insufficient experience.

Second, the challenge of fund use and supervision. After the implementation of the Opinion, the use of special bond funds is subject to strict supervision. Tourism and culture enterprises need to establish sound financial management and internal control systems to ensure the compliance and effectiveness of fund use. At the same time, it is necessary to establish a special account to manage special bond funds, strictly use funds according to the prescribed purposes, and avoid misappropriation or misuse. In addition, enterprises also need to establish a sound financial record and reporting system, regularly report the use of funds to relevant departments, and accept supervision, inspection, and audit assessment from relevant departments.

Third, the challenge of market competition and strength. With the optimization of the special bond management mechanism and the expansion of financing channels, competition in the tourism and culture industry will become more intense, especially among leading enterprises. In order to stand out in the selection of local special bond projects, tourism and culture enterprises not only need to plan and package high-quality projects with market competitiveness and development prospects but also need to have strong profitability and risk resistance. This trend undoubtedly poses a severe challenge to small and micro-enterprises, increasing their survival pressure.

Fourth, the challenge of risk prevention and sustainability. Tourism and culture projects usually involve large investment scales and long return periods, so risk prevention has become a key concern for enterprises. While enjoying the financing convenience brought by special bonds, tourism and culture enterprises also need to strengthen risk management and prevention mechanisms to ensure the sustainable development of projects. At the same time, during project implementation, enterprises need to closely monitor market dynamics and policy changes, and adjust project strategies and risk control measures in a timely manner to ensure the long-term stable operation and continuous profitability of the project.

How can the tourism and culture industry seize opportunities and meet challenges?

In summary, while the new regulations on the management of local government special bonds bring many development opportunities to the tourism and culture industry, they also face stricter supervision and challenges. Local governments and tourism and culture enterprises need to make greater efforts in understanding policy requirements, optimizing project planning, strengthening fund management, and strengthening risk prevention. Special bonds will play an even more important role in promoting the high-quality development of the tourism and culture industry.

(I) Deeply Understand Policies and Accurately Grasp Opportunities

The issuance of special bonds in the culture and tourism sector follows a series of strict prerequisites, requiring projects to not only have public welfare but also profitability. Therefore, local governments and project owners must fully grasp the specific articles and management regulations of relevant policies to ensure that tourism and culture projects comply with regulations in the application, use, and repayment of special bonds. By deeply interpreting and understanding the essence of the policy, accurately grasping the policy orientation and key support areas, it provides an action guide for tourism and culture projects to apply for local special bonds.

(II) Carefully Plan Projects and Improve Reserve Quality

With the introduction of the Opinion, project reserve and screening work has been given higher standards and requirements. In order to effectively cope with this change, enterprises need to focus on the key support areas and screening standards of tourism and culture special bonds, conduct accurate assessments of planned projects in terms of feasibility, market prospects, return on investment, and compliance with policy requirements, to ensure that projects can successfully enter the local tourism and culture special bond reserve project library. Through self-assessment, enterprises can select projects that meet the direction of special bond support and are of high quality, laying the foundation for subsequent application and reserve work.

(III) Strengthen Revenue and Expenditure Balance and Stable Operation and Development

Tourism and culture projects usually have large capital needs and long investment return cycles, so the issuance period of special bonds mainly focuses on medium and long terms such as 15 years, 20 years, and 30 years. How to maintain the balance between project income and financing is a severe test. The government and project owners must comprehensively and scientifically evaluate and calculate the diversity and superimposed benefits of project income sources to ensure that tourism and culture projects can achieve more than double coverage of principal and interest of special bonds (income is about 1.2 times the principal and interest) during the entire life cycle of local government special bonds. This is not only a test of project operation capabilities but also a comprehensive test of risk management capabilities.

(IV) Give Full Play to Independent Advantages and Accelerate Project Planning

The construction content of cultural tourism projects is diverse and scattered, requiring coordination among various departments. The cycle for project application, approval, and review is relatively long. To this end, Jiangsu, Zhejiang, Anhui, Fujian, Shandong, Hunan, Guangdong, and Sichuan provinces have been included in the "self-examination and self-issuance" pilot program. While ensuring legality and compliance, these regions should fully utilize the initiative of provincial governments in independently reviewing and issuing special bonds, broadening financing channels for special bonds, strengthening top-level design and precise planning for key projects in the cultural tourism sector, and prioritizing high-quality, high-value-added cultural tourism projects to accelerate the high-quality development of the cultural tourism industry.

Conclusion

In summary, the release of this "Opinion" not only addresses some long-standing problems in the management of local government special bonds but also brings new opportunities and challenges to special bond investment in the cultural tourism industry. In future practical applications, the cultural tourism industry needs to actively adapt to new policies, seize opportunities, meet challenges, and win the favor of capital with high-quality cultural tourism projects. At the same time, local governments should strictly implement policy regulations, optimize project planning, strengthen financial management, and enhance risk prevention to ensure that special bonds play a greater role in promoting the high-quality development of the cultural tourism industry.

Appendix: Historical Evolution of Special Bond Investment Areas

Local government special bonds are an important component of China's fiscal policy. They are government bonds issued for public welfare projects with certain returns, using government funds or special revenue corresponding to public welfare projects as the source of repayment and interest. They play a crucial role in promoting local economic development and ensuring infrastructure construction.

(I) The Background and Initial Development of Special Bonds

Before 2014, the debt-raising behavior of local governments in China was subject to relatively strict restrictions. With the development of the economy and society, the existing financing channels of local governments could no longer meet the needs. Therefore, in August 2014, the "Budget Law of the People's Republic of China (2014 Amendment)" officially granted local governments the right to borrow legally, and local government bonds became the only legal channel for local governments to raise funds through debt. In September of the same year, the State Council issued the "Opinion of the State Council on Strengthening the Management of Local Government Debt" (Guofa [2014] No. 43), clearly stating that local governments can issue special bonds, marking the official debut of special bonds on the historical stage.

From 2015 onwards, the issuance and management of special bonds officially entered the initial stage. The Ministry of Finance issued the "2015 Management Measures for Local Government Special Bond Budgets" and the "Interim Measures for the Management of Issuance of Local Government Special Bonds," formally defining special bonds, their repayment sources, budget management, underwriting and issuance, etc. However, during this stage, the investment areas of special bonds were not clearly defined, mainly focusing on replacement special bonds and new special bonds, with new special bonds mainly being land reserve special bonds.

(II) The Gradual Clarification and Expansion of Special Bond Investment Areas

Entering 2017, special bonds ushered in a period of rapid development. The Ministry of Finance issued the "Notice on Piloting the Development of Local Government Special Bond Varieties Where Project Returns and Financing Achieve Self-Balance," prioritizing land reserves and toll roads for nationwide pilot programs and gradually including projects such as shantytown renovation in the issuance scope. The issuance of special bonds during this stage paid more attention to the profitability and self-balance of projects, providing valuable exploration and experience for subsequent special bond issuance.

In 2019, the State Council's executive meeting published the negative list for local government special bonds for the first time, clearly defining areas where special bond funds could not be used and establishing a basic classification framework for special bond investment areas. This framework covers multiple areas, including transportation infrastructure, energy, agriculture, forestry, water conservancy, ecological environment, and social undertakings, providing clear guidance and direction for the investment of special bonds.

(III) Continuous Optimization and Expansion of Special Bond Investment Areas

In recent years, with the rapid development of the national economy, the investment areas of special bonds have also been continuously optimized and expanded. In 2021, the Ministry of Finance and the National Development and Reform Commission jointly issued the "Notice on Reporting the Funding Needs of Newly Added Special Bond Projects in 2022," clarifying the main support scope of newly added special bond funds in 2022, covering nine areas: transportation infrastructure, energy, agriculture, forestry, water conservancy, ecological environment, social undertakings, urban and rural cold chain logistics facilities, municipal and industrial park infrastructure, national major strategic projects, and affordable housing projects.

In 2022, the State Council issued the "Notice on Issuing a Package of Policy Measures to Firmly Stabilize the Economy," clarifying that on the basis of the nine areas previously determined, the scope of support for special bonds should be appropriately expanded, giving priority to including new infrastructure and new energy projects in the support scope. In the same year, the National Development and Reform Commission issued the "Notice on Organizing the Application for Local Government Special Bond Projects in 2023," making specific arrangements for newly added support areas. Thus, the investment areas of special bonds were officially expanded to the current "ten areas."

(IV) Optimizing and Improving the Management Mechanism for Local Government Special Bonds

However, with changes in the economic situation and increased fiscal needs, the existing management mechanism for local government special bonds has gradually revealed some risky issues that urgently need to be addressed. Some local governments have exhibited irregularities and lack of transparency in the issuance and use of special bonds, leading to low capital use efficiency and even misappropriation or abuse. At the same time, due to insufficiently strict project selection criteria, some truly promising and needed projects have difficulty obtaining sufficient support, leading to the continuous expansion of local government debt.

To improve the management level of local government special bonds, in December 2024, the General Office of the State Council issued the "Opinion on Further Optimizing and Improving the Management Mechanism for Local Government Special Bonds," proposing 17 new optimization measures in seven areas. The introduction of this policy marks a further deepening of China's fiscal policy in the field of innovation, not only providing local governments with more flexible ways to use funds but also providing a mechanism to guarantee the standardized and efficient management of local government special bonds.

In summary, in its ten years of development, special bonds have grown from nothing to something, from few to many, and from many to better. This reflects not only the phased requirements and characteristics of China's socio-economic development but also the dynamic adjustment and guidance of national policies. In this process, special bonds have continuously guided localities to accurately focus on areas of weakness and shortcomings, continuously optimize their scope of use, and expand effective investment, providing strong support for stimulating consumption, expanding domestic demand, and promoting employment and steady growth.

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