OREANDA-NEWS. May 14, 2014. Premier Li Keqiang's invitation for private investors to help finance railways, ports and waterworks will help curb a blowout in regional debt, supporting a rally in local-government financing vehicle bonds.

The mainland would open up bidding for 80 projects in industries now dominated by the state, a government statement said on April 23, citing a meeting chaired by Li. The yield on 2017 notes of Chifeng City Infrastructure Investment & Development, a road-building financing vehicle in Inner Mongolia, fell 124 basis points this year to 6.4 per cent, exchange data showed.

"As long as the infrastructure project's cash flow is certain, private capital would be willing to invest," said Li Ning, an analyst at Haitong Securities. "With the government rolling out measures to support local financing, investors are treating LGFV bonds as safe-haven assets."

Lower borrowing costs are helping regional authorities as they grapple with a slowing economy and a record 17.9 trillion yuan (HKD22.5 trillion) pile of debt that helped fund spending on roads, bridges and subways after the global financial crisis.

The financing vehicles, which issued the most bonds since the last quarter of 2012, are under pressure to help pay for Li's plan to build 36 million low-cost homes in five years.

Following the initial 80 projects, the government would promote the opening of other sectors, including oil and gas exploration, utilities, waterworks and airports, to private capital, said the State Council's statement.

Qiu Xinhong, a fund manager at Golden Eagle Asset Management, said: "The recent moves send a policy signal. The government is seeking to lower local governments' borrowing costs and slow the build-up of debt."

Regional governments have established more than 10,000 local financing units to fund construction projects after they were barred from directly issuing bonds under a 1994 budget law.

The vehicles issued 370 billion yuan of notes this year, data showed. Most of their debt matures in 2019, with 451.3 billion yuan due, against 47.4 billion yuan in the rest of this year.

The government might struggle to attract private financing for unattractive projects, Qiu said.