The first two months of 2025 have seen a significant surge in the issuance of industrial bonds in the primary market compared to the same period last yearAccording to the latest data from the Enterprise Early Warning System, as of February 24, the new issuance of industrial bonds had reached a staggering 946.87 billion yuan, covering both the interbank and exchange marketsThis represents a year-on-year increase of 10.07% in terms of volume and a 13.30% increase in the number of new bonds issued, reflecting a robust growth trend in the industrial bond market.

A closer examination reveals that prominent issuers of these newly issued industrial bonds include major state-owned enterprises such as the State Grid Corporation of China, China Petroleum & Chemical Corporation, Sinochem Group, China National Railway Group, and China Southern Power GridThe breakdown of industries reveals that public utility entities constitute the largest portion of new industrial bond issuers, making up 14.5% of the totalOther significant sectors include retail, transportation, construction, and real estate.

Analyzing the current state of the industrial bond market, Zheng Jiawei, the chief analyst for fixed income at Yongxing Securities, indicated that the recent market adjustments have led to a modest increase in the cost of issuing industrial bondsHowever, the decline in interest rates for high-rated public utility bonds has not been as pronouncedOverall, the data indicates that in 2025, bonds issued by state-owned enterprises and high-rated entities dominate, while lower-rated bond issuances have seen a significant cancellation rate.

Shifting from “refinancing” to “expansion” is the current trendMost newly issued industrial bonds are primarily allocated toward refinancing existing debt or servicing interest payments, with a relatively low percentage directed toward production expenditures or equity investmentData as of February 24 reveals that of the newly issued industrial bonds in 2025, approximately 24.22% were used for refinancing (229.31 billion yuan), 24.51% for servicing interest payments (232.04 billion yuan), and 16.85% for supplementing working capital (159.54 billion yuan). Only 3.88% was allocated for project construction (36.78 billion yuan), while around 30.54% went toward other uses (289.21 billion yuan).

The higher proportions of funds designated for refinancing and servicing debts signal lingering reluctance among businesses to invest long-term

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Zheng noted that borrowing to repay old debts helps alleviate short-term repayment pressures, which is crucial for maintaining liquidity and normal operational continuity amid high debt concentrationsThis approach buys these firms time for strategic operational adjustments and financial improvements, ultimately bolstering their resilience against risks.

"Nonetheless, in the long run, a company's competitiveness largely depends on innovative technological advancements and productive investments,” Zheng cautionedHe emphasized that if excessive funds continue to be funneled into debt servicing, it could jeopardize investments in research and development, as well as equipment upgrades, impairing future profitability and competitive positioning in the marketMoving forward, incentives should be established to direct more industrial bond funding toward productive investments and equity stakes, essential for nurturing high-quality economic development.

The surge in industrial bond issuance has notable implications for the financing capabilities of the issuing enterprisesWhen compared to equity financing through stocks, the growing share of industrial bond issuance strengthens the financial leverage of these businesses by creating a cost advantage on the liability sideZheng mentioned that the cooling IPO market has, to some extent, influenced the equity financing landscape for industrial entities; however, industrial bonds present a series of advantages: lower financing costs, tax deductions on interest payments, the ability to secure substantial funding for significant capital expansions, a maintained control structure, and various kinds of bonds tailored to the specific needs of enterprises.

In the context of an overall decline in interest rates, it is anticipated that the rates associated with industrial bond issuances will continue to drop furtherObservers in the industry generally believe such trends will lead to lower financing costs for real industries, aiming to alleviate liquidity strains and debt burdens on enterprises

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Furthermore, directing funding toward strategic emerging industries can augment local sectoral upgrades and foster high-quality developmental prospects.

Recently, the Guizhou provincial government unveiled its implementation plan, which specifies pushing for high-quality development within the corporate bond (including enterprise bonds) marketThis initiative seeks to stimulate the issuance of industrial bonds, encouraging businesses to leverage bond financing to issue more creative debt instruments such as tech innovation bonds, green bonds, and rural revitalization bondsAdditionally, a localized credit framework is being proposed to facilitate lower guarantee fee rates through governmental financing agencies, effectively reducing corporate financing costs.

Several analysts highlighted that growing enthusiasm among institutions for subscribing to newly issued industrial bonds stems from robust policy support for real enterprises and a dual drive for local bonds transitioning city investment platforms towards industrial investments.

Notably, since 2024, a multitude of urban investment companies have shifted away from platform-based operations, evolving into local industrial investment platformsThis transformation suggests that new issuers for industrial bonds may continue to rise sharply into 2025, becoming a significant force within the bond issuance marketThis trend favors local key state-owned enterprises’ industrial bonds, particularly those that collect funds for major local projects, enhancing their investment appeal significantly.

Despite this positive outlook, market participants caution that as urban investment platforms evolve into issuers of industrial bonds, the previous expectations of "local fiscal guarantees" will be supplanted by a more market-driven approachShould defaults occur, the financial risks will fall squarely on the shoulders of the enterprises issuing these bondsThis shift emphasizes the importance of rigorous due diligence and careful financial planning as the market dynamics continue to evolve.

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