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●  With the deep implementation of the rural revitalization strategy, the central government or various departments have issued a series of policies to encourage funding support for rural revitalization projects through the bond market, and these policies are gradually improving.The notice jointly issued by the five departments to strengthen financial support for the comprehensive rural revitalization special action further encourages financial institutions to issue special financial bonds to support financing tools for agricultural enterprises, and to continuously increase investment in key areas of rural revitalization.

●   In recent years, there have been few changes in the approval policies for rural revitalization bonds by the dealer association and exchanges. Generally, issuers need to meet certain qualifications, such as rural revitalization special corporate bonds requiring registration in national rural revitalization key support counties or areas that have not lifted poverty alleviation for less than five years, and the funds raised are mainly used to support related fields of rural revitalization. In the early stage of the issuance of rural revitalization bonds, provincial-level investment companies, central enterprises, and high-quality agricultural industry entities were the main issuers, and the project approval rate was relatively high. Since 2023, the number of non-urban investment companies has decreased, and the number of district and county-level urban investment companies has increased significantly. However, affected by comprehensive debt policies such as document No. 35, the approval rate and issuance scale of rural revitalization special corporate bonds and bills have continued to tighten, with fewer new samples added.

●   In recent years, the rural revitalization bond market has continued to expand, but the growth rate has relatively slowed down. From the overall bond structure, the issuance is mainly through the interbank market, and the issuance period is mostly between 1-5 years (including 5 years). The issuance period has gradually lengthened, and the issuance cost has slightly decreased. Looking at the issuance structure of urban investment company bonds, both the issuance scale and cost have fluctuated. Private placement products are the main bond types, and the issuer level and administrative level are relatively lower than other types of enterprises. In addition, the successfully issued bond-financed projects differ according to the function and positioning of the issuer. There are similarities with other enterprises that have similar functions and positioning, and they are basically based on the issuer's own resource endowment or regional industrial layout. In the early stage of the issuance of rural revitalization bonds, there were limitations on the geographical location of the issuers and the low proportion of funding used in the relevant areas. However, the new round of policies or guidance issued by the five departments may improve the issuance mechanism of rural revitalization bonds, activate the resources of urban investment companies in rural revitalization, promote project construction, and improve the financing environment for district and county-level urban investment companies.

Implementing the rural revitalization strategy is a major decision and deployment made at the 19th National Congress of the Communist Party of China. It is also a significant historical task to win the decisive victory in building a moderately prosperous society in all respects and constructing a socialist modernized country. However, currently, financial resources and institutions mainly serve the industrial industry and urban areas, and resource allocation based on price is difficult to achieve the development goal of simultaneous growth in economic benefits and social benefits. Against this background, on August 5, 2024, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the Ministry of Finance, and the Ministry of Agriculture and Rural Affairs jointly issued the "Notice on Strengthening Financial Support for the Special Action of Rural Revitalization by Learning and Applying the Experience of the "Ten Million Project"" (hereinafter referred to as the "Notice"), aiming to continuously optimize the service mechanism of financial institutions, tilt resources towards counties, and promote comprehensive rural revitalization through the use of "financial liquidity".

The "Notice" proposes to implement five special actions, namely, financial security for food security, consolidating and expanding the effectiveness of financial assistance, financial services for rural industrial development, financial support for rural construction, and financial empowerment for rural governance, to strengthen financial support for comprehensive rural revitalization. At the same time, the "Notice" also clearly proposes guidance on "guiding qualified entities to expand their funding sources in new urbanization areas such as extending municipal public facilities and integrating urban and rural road passenger transport by issuing corporate credit bonds and asset-backed securities" and "supporting qualified agricultural-related enterprises to issue asset-backed securities, rural revitalization bills, rural revitalization corporate bonds and other financing tools", which may provide new opportunities for the development of the rural revitalization bond market. Based on the policy orientation proposed in the "Notice", this article analyzes the opportunities or favorable factors that may exist in the subsequent issuance of rural revitalization bonds by reviewing the supporting policies, approval rules, trends, issuance situation, and bond-financed projects of the rural revitalization bond market in recent years.

The above-mentioned "Notice" was formulated to implement this year's Central Document No.1, with the goal of promoting comprehensive rural revitalization through financial assistance and consolidating the agricultural foundation. Rural revitalization bonds can play an important role in filling the financing gap in rural areas and supporting rural revitalization construction. Since 2021, several departments have provided supportive policies or guidance on the development of the rural revitalization field. In the Central Document No.1 of 2021, "comprehensively promoting rural revitalization" was proposed for the first time, and local governments were supported in issuing general bonds. In March of the same year, the China Interbank Market Dealers Association launched rural revitalization bills and clarified the support areas, registration and issuance requirements, and other aspects of rural revitalization bills. In July, the exchange market included rural revitalization special corporate bonds as innovative varieties of corporate bonds and issued business guidelines, clarifying the issuance conditions and use of funds for rural revitalization corporate bonds. In June and July 2023, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the Ministry of Finance, the Ministry of Agriculture and Rural Affairs, and the dealer association successively proposed to support qualified enterprises to support the development of rural revitalization-related areas through the issuance of rural revitalization products.

On August 5, 2024, the five departments jointly issued the "Notice" again, encouraging financial institutions to issue special financial bonds and supporting financing tools for agricultural enterprises, and increasing investment in key areas of rural revitalization. The "Notice" proposes to implement five special actions. The first is the financial security for food security special action, which expands the financial service scenarios for the entire industry chain of grain production, circulation, storage, and processing, innovates the financing model for high-standard farmland and facility agriculture construction, and deepens the revitalization of the seed industry and agricultural technology financial services. It supports qualified seed industry enterprises to go public, list, and refinance. The second is to consolidate and expand the effectiveness of financial assistance special action, continue to implement differentiated financial support policies for key poverty alleviation counties, and maintain the intensity of credit investment in poverty-stricken areas. Solid work should be done in targeted assistance. The third is to implement the financial services for rural industrial development special action, using financing channels such as credit, bonds, equity, and leasing, expanding the scope of collateral, and activating rural asset resources. Promote the integrated development of the primary, secondary, and tertiary industries in rural areas and support farmers to increase their income and become affluent. Actively meet the financing needs of county-level logistics and distribution centers and other projects. The fourth is to implement the financial support for rural construction special action, develop loan products for human settlements, and strengthen financial support for rural human settlements and ecological civilization construction. Strengthen the financial guarantee for rural infrastructure construction and public service facilities. The fifth is to implement the financial empowerment for rural governance special action, innovate the financial support model for the integration of agriculture, culture, and tourism. Strengthen basic financial services in rural areas, and support digital rural construction.

Currently, the interbank and exchange markets are the main issuance venues for rural revitalization bonds, and rural revitalization notes and rural revitalization special corporate bonds are innovative products directly related to rural revitalization. According to the policy of the Interbank Dealers Association, the funds raised by rural revitalization notes should be invested in accordance with the requirements of the People's Bank of China's financial services for rural revitalization, and used to support rural development related to "three rural" issues, including farmers' employment and income increase, agricultural modernization, rural construction, and other projects related to rural revitalization. The use of funds raised can be used for rural revitalization project construction, repayment of rural revitalization project loans, and supplementing rural revitalization project operating funds, but the investment projects should adhere to commercial sustainability principles and have a market-oriented investment income mechanism. The issuer should disclose the investment income model of the projects funded by the raised funds in the issuance documents. For projects registered for rural revitalization notes, the proportion of funds used for rural revitalization must be ensured to be ≥30% in the initial issuance. When the proportion of funds raised for rural revitalization reaches 30% and 100%, the issuer can choose to label the bonds as "rural revitalization" or "special rural revitalization" for identification purposes.

The Shanghai and Shenzhen stock exchanges have also issued guidelines for the issuance and listing review of special types of corporate bonds, including the rural revitalization special corporate bonds. According to these guidelines, the issuers who raise funds for rural revitalization-related projects must meet the following requirements: (1) the registered location of the company should be in key rural revitalization counties supported by the state or in areas where poverty alleviation has been achieved for less than five years, and the funds raised are mainly used to support rural revitalization-related fields; (2) the funds raised should be mainly used for the construction, operation, acquisition, or repayment of interest-bearing debts of rural revitalization-related projects. At the same time, the amount of funds raised for rural revitalization-related areas or projects should not be less than 70% of the total amount of funds raised. The Shanghai Stock Exchange allows issuers to use their own funds spent on rural revitalization-related areas or projects within three months before the issuance of bonds to exchange for the funds raised. Both of them have made special arrangements for the information disclosure of rural revitalization bonds. Issuers should disclose the basic information of the proposed investment projects in the prospectus, including the basis for the projects to belong to the rural revitalization and poverty alleviation category, specific implementation plans, policy support, and other aspects. During the bond's tenure, issuers should disclose the use of funds raised, the effects of supporting rural revitalization-related areas or projects, and other information in regular reports. In addition, the special bonds for the construction of new county towns and the integration of agricultural industry development issued by the National Development and Reform Commission have been integrated into the bond management system of the exchanges, and eligible projects can still be issued. The Beijing Stock Exchange also issued guidelines for the issuance and listing review of special types of corporate bonds, including rural revitalization special corporate bonds, which basically follow the relevant requirements of the Shanghai Stock Exchange's approval policy for rural revitalization corporate bonds.

From the perspective of approval and issuance trends, in the early stage of rural revitalization bond application, provincial-level transportation and investment companies, central enterprises, and high-quality agricultural industry entities were the main applicants, with a high project approval rate. Since 2023, the number of non-urban investment companies has decreased, and the number of county-level urban investment companies has increased significantly, mainly in the form of private placement bonds. However, affected by market conditions and policy adjustments, the registration, approval, and issuance scale of rural revitalization bonds have been declining year by year, especially since the second half of 2023, under the constraints of comprehensive debt policies such as policy No. 35, the refinancing space for traditional urban investment companies, especially low-level entities or high-debt areas, has tightened, making it difficult to achieve new financing, and the pass rate and issuance scale of rural revitalization special corporate bonds and notes are relatively low. Taking the Shanghai Stock Exchange as an example, since July 2021, the Shanghai Stock Exchange has received a total of 187 applications for rural revitalization special corporate bonds, of which 74 have been approved or registered, 70 have been terminated, 39 have been feedbacked, and 4 have been accepted, with a relatively low overall pass rate. In terms of varieties, the applications for rural revitalization special corporate bonds on the Shanghai Stock Exchange are mainly concentrated in the field of private placement bonds, of which 171 private placement bonds have been accepted, with 63 approved; 4 small public offerings, 3 registered and effective; and 12 asset-backed special plans, 8 approved. From 2021 to 2023, the number of rural revitalization bonds accepted by the Shanghai Stock Exchange has been increasing year by year, but the pass rate has been continuously decreasing. Affected by policy adjustments and the tightening of new bond issuance reviews in the bond market, the pass rate has significantly decreased since 2023. Since October 2023, the Shanghai Stock Exchange has only approved 3 rural revitalization corporate bonds and 5 asset-backed special plans. Currently, the issuance of rural revitalization bonds in the market is still mainly based on obtaining approval in the early stage.

The bond market is an important financing channel for China's policy-supported development areas. As of the end of July 2024, a total of 519 rural revitalization bonds had been issued in the interbank and exchange markets, with a total issuance amount of 331.048 billion yuan. The issuance of rural revitalization bonds is mainly concentrated in the interbank market, with a proportion of 67.73%, while the proportion of the exchange market and the interbank market in rural revitalization bond issuance was 32.27% and 67.73% respectively. From 2021 to 2023, the overall issuance scale of the interbank market gradually decreased, while the issuance scale of the exchange market relatively increased. However, since the comprehensive debt policy was implemented, the overall issuance scale has decreased significantly. In terms of bond issuance types, general medium-term notes, ultra-short-term financing bonds, and private placement bonds have relatively high proportions, accounting for 33.62%, 22.61%, and 20.90% respectively. In terms of bond issuance period, in recent years, rural revitalization bonds have been mainly issued for a period of 5 years or less, with proportions of 31.01% for less than 1 year and 63.29% for 1-5 years (including 5 years). The average issuance period has been lengthening in recent years. In terms of issuance cost, the issuance cost of rural revitalization bonds was relatively stable in 2021 and 2022, and increased slightly in the first half of 2023 due to the influence of the capital market. However, since the comprehensive debt policy was implemented, the overall issuance cost has decreased significantly. In addition, according to the overall use of funds raised by rural revitalization bonds in recent years, the proportion of bonds explicitly used for rural revitalization-related projects is 39.31%, the proportion used to repay early-stage project construction debt is 55.11%, and the proportion used to supplement operating capital is 21.19%.

Looking at the issuers of rural revitalization bonds, the credit level is mainly distributed among AAA and AA+ issuers, accounting for 54.74% and 17.79% of the issuance, respectively. Nearly half of the AA and unrated issuers need to issue bonds through guarantees to enhance their creditworthiness. In terms of the nature of the issuing enterprises, state-owned enterprises are the main participating entities in the issuance of rural revitalization bonds, with local state-owned enterprises and central state-owned enterprises accounting for 61.34% and 24.30% respectively. Local state-owned enterprises mainly consist of provincial industrial state-owned enterprises and urban investment enterprises. In terms of regional distribution, except for Inner Mongolia, Beijing, Guangdong, and the Yangtze River Delta region are the concentrated areas of rural revitalization bond issuance, and the overall issuance scale shows a significant step-like pattern. Looking at the specific cities where the issuing entities are located, they are mainly concentrated in provincial capitals with strong economic and financial strength, while other regions still have considerable room for expansion.

Urban investment enterprises are the main participants in the bond market among local state-owned enterprises, and they are also the main undertakers of important rural revitalization-related projects. Therefore, urban investment enterprises are also important issuers in the field of rural revitalization bonds. Since 2021, urban investment enterprises have issued a total of 141 rural revitalization bonds with a total issuance amount of 74.532 billion yuan. The overall issuance scale increased significantly in 2023, but has decreased significantly since the comprehensive debt policy was implemented. In the fourth quarter of 2023, the second quarter of 2024, and July 2024, they issued bonds of 220 million yuan, 110 million yuan, and 1.5 billion yuan respectively, and the policy impact was significant. The issuing entities were not first-time issuers. The types of rural revitalization bonds issued by urban investment enterprises are mainly private placement bonds, targeted tools, and general medium-term notes. The bond periods are mostly concentrated in 1-5 years (including 5 years), with 3-year and 5-year periods being the main ones, accounting for 38.54% and 39.09% of the issuance amount, respectively. The weighted average issuance interest rate of bonds showed an upward trend before the first quarter of 2023, but has since decreased significantly. Due to the impact of the issuing entity's qualifications, the issuance cost of rural revitalization bonds issued by urban investment enterprises is generally higher than that of other types of issuers. In terms of the use of funds raised, the proportion of rural revitalization bonds issued by urban investment enterprises that are explicitly used for project-related purposes is 53.90%, of which the proportion of bonds used for project-related purposes in the interbank market is 32.73%, and the proportion in the exchange market is 67.44%. In terms of the distribution of issuing entities, AA and AA+ entities are the main issuers of rural revitalization bonds, and their administrative levels are relatively lower than those of other types of enterprises. The issuance regions are mainly concentrated in Jiangsu, Zhejiang, and some central and western provinces.

In addition to local investment and construction companies, other entities involved in traditional urban infrastructure investment, agricultural investment, cultural tourism investment, and park investment also have relatively high-quality local resources that can be used to integrate rural revitalization-related projects. Looking at urban infrastructure investment companies, projects such as Chuzhou Urban Investment's clay mine mining project, Changxing Urban Investment's pipeline construction project, Qingdao Urban Investment's power station project, Huzhou Urban Investment's agricultural product logistics center, Zouping Guotou's urban water supply system project, and Yunnan Construction Investment's human settlement environment renovation all rely on the original infrastructure projects of these companies to apply for rural revitalization bonds. Looking at agricultural investment companies, LanKao Agricultural Investment's high-standard farmland, Guangxi Agricultural Investment's arable land improvement and transformation, and Peixian farmland's farm project are mainly based on agricultural infrastructure projects such as high-standard farmland, arable land, and farms to apply for rural revitalization bonds. Cultural tourism investment companies can also apply for rural revitalization bonds through rural cultural and tourism integration projects, such as Wu Zhong Culture and Tourism's village and community surrounding environment renovation project. Projects such as water conservancy, ecological environment improvement, and other related projects can also be used to apply for rural revitalization bonds by exploring their rural revitalization effects, such as Henan Water Investment's water environment management project.

Looking at specific cases, local urban investment enterprises issue rural revitalization bonds based on their own resource endowments, main business advantages, or regional industrial planning. For example, the "23 Zouping State-owned Assets MTN001" bond is for the upgrading of the urban water supply system, and the "G Juxin 02V" bond is for the comprehensive ecological environment improvement project in Shiyan City, which are both linked to traditional infrastructure projects and urban-rural environmental improvement. The "22 Xinglan GV" bond packages high-standard farmland projects based on the agricultural resource advantages of the issuing entity. The fundraising projects basically meet the recognition criteria and policy support of rural revitalization. In practice, in addition to support policies issued by the central government and the State Council, relevant support policies formulated by provincial governments under the guidance of central policies, as well as local government recognition opinions, can be used as effective policy bases. For example, the "23 Xuanda V1" bond is mainly based on the opinion of the management committee of the Yueyang Economic and Technological Development Zone to include the relevant project in the plan for stable employment of poor populations. At the same time, fundraising projects can basically meet the development requirements of the local rural revitalization related areas, and the feasibility of the balance of project benefits and corresponding use of fundraising purposes needs to be effectively demonstrated. The fundraising used for rural revitalization-related debt refinancing, and the pre-project linked to the rural revitalization area also need to meet relevant policy bases and effectiveness requirements. In addition, issuing entities can choose to combine with other innovative varieties according to their own conditions and project types, such as "rural revitalization + green, scientific and technological innovation, revolutionary old areas" and other "compound label" products. The "22 Xinglan GV" and "G Juxin 02V" bonds have both been certified as green bonds.

In addition to relying on traditional infrastructure projects to apply for rural revitalization bonds, local industrial state-owned enterprises also rely on their own high-quality industrial resources to apply for bonds, which is also an important channel. This part of resources involves a wide range of areas, but is basically closely related to agriculture, rural areas, and farmers. Specifically, they include bulk grain source bases, seed fertilizers and labor related to planting, ecological breeding, rural revitalization-related cultural tourism and health care, wind and solar power and other new energy projects.

Despite the gradual expansion of the rural revitalization bond market in recent years, there are still shortcomings in the issuance sector, such as regional restrictions on issuing entities and a relatively low proportion of funds used in rural revitalization:

First, there are regional restrictions on issuing entities. According to the Shanghai Stock Exchange and Shenzhen Stock Exchange's audit guidelines for rural revitalization corporate bonds, enterprises applying for rural revitalization bonds must be registered in areas where poverty alleviation and hat removal have not been achieved for less than five years, and the raised funds must be mainly used to support related areas of rural revitalization. Although the Shanghai Stock Exchange updated the relevant rules of rural revitalization corporate bonds in June 2022, clarifying that enterprises registered in national key poverty-stricken counties can directly apply for specific types of rural revitalization corporate bonds, the strict regional restrictions have resulted in a limited overall fundraising size for rural revitalization bonds.

Second, there is a relatively low proportion of funds used in rural revitalization. According to bond review requirements, the exchange stipulates that funds raised for rural revitalization-related projects should account for no less than 70% of the total funds raised. The Securities Dealers Association requires that the proportion of funds raised for rural revitalization purposes must be more than 30% to use the "rural revitalization" label, and when the proportion of funds used for rural revitalization purposes is 100%, the "special rural revitalization" label can be used. However, from the overall issuance situation, the proportion of bonds issued in the bond market related to rural revitalization with funds raised for projects accounted for 39.31%. Among them, the proportion of bonds issued by urban investment and construction companies involved in rural revitalization with funds raised for projects accounted for 53.90%. The proportion of funds raised for rural revitalization projects is higher than the overall issuance situation, but the actual proportion of funds used in specific rural revitalization-related projects is still relatively low.

However, due to the importance of rural revitalization in China's future development planning and layout, the further effective development of the rural revitalization bond market also has a good foundation:

First, the policy side continues to push for the improvement of the bond issuance mechanism. The importance of rural revitalization has been repeatedly emphasized in various aspects such as the 20th National Congress of the Communist Party of China, the 2nd and 3rd Plenary Sessions of the 20th Central Committee, the Central Economic Work Conference, the Central Financial Work Conference, and the Central Rural Work Conference. Relevant development guidance opinions or policies have also been introduced. In April of this year, the Shanghai Stock Exchange also made it clear that the financing structure of transformational enterprises can focus on tools such as rural revitalization bonds. The recent "Five Departments" announcement of strengthening financial support for the comprehensive revitalization of the countryside once again emphasizes the importance of bonds in helping to build a modern rural industrial system. The continuous efforts of the policy side will be more conducive to the further improvement of the bond issuance mechanism for rural revitalization.

Secondly, there are favorable factors for urban investment and construction companies to revitalize rural revitalization-related resources and project construction. This announcement also clearly states that it will "increase financial support for the construction of distributed new energy in rural areas, key village and town new energy vehicle charging and swapping facilities, etc." and "guide eligible entities to broaden the funding sources for new urbanization in areas such as extending municipal public facilities and integrating urban and rural road passenger transport through the issuance of corporate credit bonds and asset-backed securities." Some local agricultural and rural-related resources are mainly held by urban investment and construction companies, which are also key project construction and operation entities for regional rural revitalization. The further development of rural revitalization bonds will help urban investment and construction companies to promote the construction of local rural revitalization-related projects and the revitalization of agricultural and rural-related resources. However, how urban investment and construction companies or newly integrated industrial entities can use rural revitalization bonds to support their development still needs further policy clarification under the context of package bond policies.

Thirdly, the promulgation of relevant policies is expected to help improve the current financing environment of county-level urban investment and construction companies. Counties are the main regions for promoting comprehensive rural revitalization. In the early stage of local enterprise rural revitalization bond issuance, provincial and municipal-level enterprises were the main issuers. However, county-level state-owned enterprises actually have rich rural revitalization-related resources available for development. The promulgation of the new policy is expected to promote further effective integration of regional resources by county-level urban investment and construction companies, and by leveraging their own resources to support platform enterprises to obtain more financial support, thereby improving their own financing environment.