(Bloomberg) -- China’s Henan province said it was selling new bonds to fund government projects, revising an earlier statement the money would be used to repay debt that initially triggered market speculation of Beijing potentially loosening rules for local authorities.  

The province in central China earlier said it planned to sell 52 billion yuan ($7.2 billion) in special local bonds next week and use all the funds to repay existing debt, according to a ratings report published by China Lianhe Credit Rating Co. on Wednesday. 

It sparked speculation among market watchers that Beijing may be easing controls on the use of new special bonds as it seeks to address local debt risks. Hours later, the report was changed to show the funds would be channeled to 174 government projects in various counties. 

No further details were given in the revised report that was published on the ChinaBond website, run by the country’s central clearing house, along with documents provided by the provincial government. 

The Ministry of Finance issued regulations in 2020 prohibiting local authorities from selling new special bonds to swap existing debt. The bonds have traditionally been mostly used to pay for infrastructure investment to drive economic growth. Local governments in recent years have been allowed to sell so-called special refinancing notes to pay for maturing debt.

An official at the provincial fiscal department didn’t immediately comment when contacted by Bloomberg News.

The region’s original bond sale plan has stoked speculation that Beijing was going to relax rules for regional authorities that were struggling to boost revenue amid an economic slowdown and a contracting property market. The local governments are also finding it harder to identify infrastructure projects that qualify for the special bond funds.

“Henan’s planned use of new special bonds to repay existing debt marks a new shift in policy this year,” said Zhou Guannan, an analyst with Huachuang Securities Co. While it shows Beijing is focused on the local debt risks and determined to resolve the issue, it also suggests the room for local governments to add leverage is shrinking and the pace is slowing, she said.

“We are closely watching if other provinces would repay existing debt with funds raised from new special bonds, and their issuance pace,” Zhou said, forecasting that around 1 trillion yuan of local bonds may be used to repay old debt within this year.

The Finance Ministry didn’t respond to Bloomberg’s request for comment. 

The new bond sale is equivalent to less than 3% of the Henan government’s total debt outstanding, according to the Lianhe Credit report.

(Updates throughout with wording change in ratings report.)

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