Local government “urban investment bonds” default again in China. On August 29, Mr. Gao from Inner Mongolia’s investment of 210,000 yuan in Shandong Zibo “urban investment bonds” with little hope of recovering the principal has sparked attention.
According to a report by “Huashang Daily” on August 28, in December 2022, Mr. Gao from Inner Mongolia subscribed to the “2022 Zibo Public Equity Bond Program” of the Boshan District State-Owned Assets Operation Co., Ltd. in Shandong. The funds were intended for the New Material Industry Park project in Badou Town, Boshan District. Mr. Gao thought that the 8.5% annualized return was quite good with relatively low risk for one year.
Initially, Mr. Gao received interest payments from the Boshan District State-Owned Assets Operation Company every quarter, totaling around 4,500 yuan per quarter except for over 3,600 yuan in the first quarter. In January 2024, according to the agreement, the company was supposed to repay the 210,000 yuan principal but encountered problems.
Chat records from January 9 showed that staff told Mr. Gao: “According to the centralized payment policy and the company’s end-of-month fund inflow situation, investors whose investments matured in December should initiate centralized payments at the end of January of the following year, including the remaining interest from the subscription period and no less than 3% of the total investment amount as principal…”
“They told me that due to tight company funds, they can only repay 3% of the principal monthly,” Mr. Gao said, even if he agreed to their payment plan, they could not repay on time.
Transfer records showed that Mr. Gao only received 3% of the total principal in January, February, April, June, and August this year. “The January money was only paid after I provided hospitalization certificates for my family’s illness. In August, I had to call them many times urgently needing the money before they finally paid out 3%.”
“I initially thought the urban investment bonds were a stable investment, but it turned out to be a bottomless pit. Now my family urgently needs the money, but the Boshan District State-Owned Assets Operation Company has been unable to make the repayments.” Mr. Gao lodged a complaint with the higher authorities.
In a response from the Boshan District Finance Bureau on March 4, it confirmed Mr. Gao’s complaint, stating that the 210,000 yuan product’s maturity interest had been fully paid, and the principal would be repaid according to the company’s payment plan in batches and over time.
Data from Tianyancha showed that the registered capital of the Boshan District State-Owned Assets Operation Company is 2 billion yuan, with the actual controlling shareholder being the Boshan District Finance Bureau.
On the afternoon of August 28, a reporter from Da Feng News contacted the Boshan District State-Owned Assets Operation Company, and the relevant person in charge stated that the company is still working on building its self-sustaining ability. The specific scale of the bonds involved is unclear, and funds are being raised to make repayments to subscribers by proportion.
The person in charge stated that currently, the company plans to repay investors 3% of the total monthly investment amount but this will be subject to the company’s monthly fund inflows. “If there is a surplus, we will make up for the previously owed 3% principal, and then ensure subsequent monthly 3% repayments are made.”
A headline article by “Tianya Jinshi” stated: “The ‘technical default’ of the 2022 urban investment bonds issued by the Boshan District of Zibo City, Shandong, has decided to postpone the payment of the principal and plan to repay 3% of the principal monthly.
“I have always believed that in terms of the safety of domestic bonds, national bonds are the safest because they are endorsed by the state’s credit. In the past, local government bonds had very little risk because they had the backing of the largest real estate scale. Now, with many cities heavily indebted and struggling to maintain their own fiscal revenues, the more dangerous urban investment bonds beyond government bonds are hardly worth investing in.”
Urban investment bonds, also known as “quasi-municipal bonds,” are a financing method for local government in China. Companies typically use urban investment bonds to invest in real estate projects or infrastructure construction projects.
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