Under the influence of a series of impacts caused by the pandemic and the increasingly complex external environment, market confidence is quite low, and the pressure to stabilize growth has reached a recent high. Against this backdrop, macroeconomic policies have finally introduced corresponding measures, and after the high-level meeting set the tone, there have been actual actions:

On the one hand, there is a new trend in the fiscal system, which will further accelerate the pace of special bond issuance, and the new special bonds for 2022 must be basically issued by the end of June; on the other hand, the State Council issued the "Opinions on Promoting Urbanization Construction with County Cities as an Important Carrier," which relaunches a new round of high-quality urbanization process to drive a new round of infrastructure construction, domestic economic circulation, and stimulate actual demand.

This means that the infrastructure construction industry, which has been silent for a period of time, is finally seeing the dawn of hope, and the future development of the industry will be quite clear:

In the current economic situation, achieving the goal of stable growth is undoubtedly a difficult task; moreover, local governments are already busy with expenditures on epidemic prevention and control and ensuring people's livelihoods, and the financial resources available for new investments are also quite limited. Therefore, in our previous forecasts, we had proposed the view of "adjusting the issuance cycle of special bonds."

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Now with the news that "new special bonds for 2022 must be basically issued by the end of June," it also confirms our previous speculation. This approach means that the special bond quota for this year will be basically used before the end of the third quarter, and according to actual needs, the local bond quota for 2023 will be advanced and used in the fourth quarter, and put into use within the year, so that there will be a significant peak in government investment in the second half of this year, in order to achieve the goal of stable growth under the existing budget system.

Moreover, according to different future needs, local special bonds can also adjust the rules for issuance and use, such as the proportion used as project capital, the way of supporting financing, etc.; with the support of abundant, long-term low-cost special bond funds, the intensity of government investment in the second half of this year will reach a peak in several years, which is enough to support a series of goals such as stable growth and stable economic operation.

Local special bonds have solved the problem of "where the money comes from," and have also found a compromise in the current budget system; then the focus lies in "where the money should be spent."

In the past two years, the real estate market has shown obvious signs of decline, among which financial supervision is an important factor, but the fundamental reason is still the significant slowdown in the speed of urbanization. Therefore, under the current complex external situation and the weakness of domestic demand, the focus of the new round of development is still on relaunching urbanization, and improving and carrying out a new type of urbanization based on the lessons learned from the past.

It is based on the demand for domestic demand and the pressure of future stable development that the State Council has now issued the "Opinions on Promoting Urbanization Construction with County Cities as an Important Carrier"; it has deepened the "Notice on Accelerating the Work of Strengthening Weak Links and Improving Shortcomings in Urbanization in County Cities" issued by the Development and Reform Commission in 2020, and carried out urbanization work on a larger scale and more in line with actual needs.Under the impetus of a new round of urbanization with new thinking, the reform of agriculture and rural areas, the expansion of domestic demand and consumption, the de-stocking of real estate, the construction of infrastructure, and the equalization of urban and rural public services all have a real carrier and driving force. The new round of population mobility and policy-driven capital flows generated by this will also comprehensively promote the launch and operation of new projects, and a new economic cycle system and development mechanism will be reborn.

In the previous market calls, it was once imagined that a new round of project construction through local financing platforms would be used to stimulate domestic demand and achieve the goal of stable growth; however, looking at the reforms of the past two years, the future development has also made it clear that the "old path" will not be taken. The new development model will change the operation mechanism, strengthen the role of the market mechanism again, and further promote high-quality development. It can also be seen in the document that it clearly proposes to "establish a diversified and sustainable investment and financing mechanism, and effectively prevent and resolve the risks of local government debt."

This can also be seen in the operation of local special bonds, increasing support to solve the restrictions on the scale of investment and reduce the long-term debt cost, but the requirement for the project itself to operate in a market-oriented manner and the requirement for self-balancing of benefits is still an absolute red line. Similarly, new urbanization field projects, such as urban renewal, area development, and ABO models, all require covering investment costs with future project benefits, rather than increasing government debt.

The follow-up supporting reforms in the future will be to further improve the market operation rules of public services and infrastructure, and to improve the resource compensation, horizontal compensation, and pricing mechanisms; through institutional reforms to make infrastructure and public service projects have more predictable income and sources, clearer asset prices, to promote the benign and long-term development of the entire industry.

The dawn of the industry is on the horizon, but the rules of the game have changed. Please keep up with the pace of the times and understand the new model and new way of playing.