Two-Way Alignment: Strategic Alignment of Municipal Special Bond Investment and Provincial Five-Year Plan
WU Min, FENG Fan, MAO Jie, BAI Jinchun
School of International Trade and Economics, University of International Business and Economics; School of Public Economics and Administration, Shanghai University of Finance and Economics
Summary:
In recent years, the issuance scale of local government special bonds in China has expanded rapidly, establishing special bonds as a crucial instrument for implementing a proactive fiscal policy and supporting infrastructure development as well as the execution of major national strategies. Under the management model characterized by “provincial issuance and city/county use”, how special bond quotas are allocated across provinces and cities directly affects the efficiency of fiscal funds and the controllability of debt risks. Entering the 15th Five-Year Plan period (2026-2030), achieving effective use of debt and orderly resolution of debt through a scientific quota allocation mechanism has become a central issue in enhancing the efficiency of special bond funds. In practice, to secure larger amounts of special bond funds, prefectural-level governments often proactively plan projects in alignment with provincial-level priority development areas, thereby creating a two-way interactive pattern of “top-down” planning guidance and “bottom-up” strategic responses. However, whether this mechanism actually improves the efficiency of special bond funds allocation, and whether provincial policies can effectively steer prefectural-level governments to direct funds toward economically and socially urgent development areas, remain to be answered. Existing studies have examined the determinants of quota allocation from perspectives such as government creditworthiness (Zhu & Fan, 2024), fiscal capacity, or geographical distance (Zhu & Hu, 2024). However, they fail to provide sufficient empirical evidence on the aforementioned micro-mechanisms and their actual effects. This paper uses textual data from provincial 14th Five-Year Plan (2021-2025) and project-level micro-data on special bonds from 2018 to 2024 to identify the key areas for special bonds across 31 provinces and equivalent administrative units. It constructs a difference-in-differences model to investigate the guiding effect of provincial 14th Five-Year Plan (2021-2025) on prefectural-level special bond investment and the economic and social outcomes. The findings show that the 14th Five-Year Plan has a significant positive guiding effect: areas designated as provincial priorities receive significantly larger amounts of special bond funds. Further analysis reveals that this guiding effect is more pronounced in regions with lower levels of project information disclosure, in sectors with a strong public welfare orientation, and in areas supported by functional industrial policies. Extended analysis demonstrates that special bond investment in key areas enhances regional innovation foundation and the supply of high-quality production factors, effectively promoting regional industrial structure upgrading. In this process, provincial authorities, through rigorous project screening, encourage localities to plan projects based on their own endowments and local conditions. At the same time, provincial authorities channel limited fiscal resources toward strategically prioritized national development areas, leveraging the institutional advantage of concentrating resources for major undertakings, thereby ensuring that special bond investment genuinely serves regional development and the broader goal of high-quality development. The contributions of this paper are threefold. First, from the perspective of strategic interactions between provincial and prefectural governments, it demonstrates the linkage logic whereby prefectural governments plan projects around provincial priorities and provincial governments guide key areas through quota allocation, thereby contributing to the literature on the determinants of special bond quota allocation. Second, it systematically evaluates the guiding effect of provincial“14th Five-Year Plan”policies on local investment decisions and reveals the allocation logic of special bond funds across micro-level sectors. Third, from the perspective of local public debt, it assesses the implementation of provincial 14th Five-Year Plan, clearly presenting the effectiveness of special bonds in serving provincial key development areas and aligning with national strategies. Collectively, these contributions provide empirical evidence for optimizing the special bond management system and enhancing fiscal sustainability. Based on the above findings, this paper derives three policy implications. First, strengthen the performance-based accountability mechanism for special bonds. A full-life-cycle performance evaluation system covering project planning, fund allocation, construction and operation, and revenue collection should be established, with evaluation results serving as an important basis for the quota allocation in the following year. Acts such as false project reporting and idle funds should be subject to legal accountability. Second, advance a dual-review mechanism for special bond projects. Third-party institutions should be introduced to participate in the review process, with their evaluation results given substantive weight, thereby preventing, at an institutional level, strategic application-driven behaviors. Third, establish a risk-sharing mechanism for special bond projects. The capital contribution ratios and debt repayment responsibilities of provinces, cities, and counties should be clearly defined according to the beneficiary-pays principle. By properly allocating risks, local expectations can be stabilized and the quality of project planning enhanced.
吴敏, 冯帆, 毛捷, 柏金春. 双向奔赴:地级市专项债投资与省级五年规划[J]. 金融研究, 2026, 552(6): 38-56.
WU Min, FENG Fan, MAO Jie, BAI Jinchun. Two-Way Alignment: Strategic Alignment of Municipal Special Bond Investment and Provincial Five-Year Plan. Journal of Financial Research, 2026, 552(6): 38-56.
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