China’s burst of local bond issuance to pay for infrastructure and support the flagging economy is being hampered by a lack of available projects and the negative effect it’s having on private sector funding.

Earlier this year, central government attempted to counter the economic slowdown by ordering the accelerated sale of special infrastructure bonds, and provincial authorities have responded enthusiastically: A flurry of sales in August and September means that 92 percent of the 1.35 trillion yuan ($195 billion) target for the year had been sold by the end of last month.

However, about 42 percent of the total special bonds sold since August are earmarked for “land reserves,” which means compensating farmers for acquisitions or preparing the acreage future development, according to analysis of bond data by Bloomberg News. In short, the economic boost of the debt creation will be less than if it was used to build highways or redevelop sub-standard housing.

The sudden surge in such debt sold into the market has also had an indirect crowding-out impact — yields on other forms of government bonds have risen, in turn pushing up those on corporate debt. As China seeks to buffer the domestic economy and shield it from the trade war with the U.S., the difficulties around the bond program heighten the chances the nation will just increase indebtedness without stoking growth.

“Land reserve bonds are favored because local officials don’t have enough projects in the pipeline when they’re being asked to speed up spending,” said Nie Wen, a Shanghai-based economist at Huabao Trust Co. “The direct impact on investment is limited,” he said. “If other funding channels for local governments remain tightly controlled, special bonds alone won’t be enough to restore growth.”

“Boosting spending in infrastructure will definitely have to rely on government” and special government bonds are an important source to replenish funding for that, said Li Peijia, a senior analyst at the Bank of China’s Institute of International Finance in Beijing.

China started to issue special bonds in 2015 to finance projects from highways to environmental facilities and affordable homes. Policy makers decide an annual quota in March each year. That has swollen over the years as local authorities grapple with worsening financing conditions as well as increasing downward pressure on the economy.

The spending is seen by some as a turbocharger in boosting investment, as it stays outside the official budget deficit, and it can leverage additional bank loans and even private capital in infrastructure projects.

This year the issuance of special bonds had a slow start amid attempts to clean up the nation’s finances. So when in late July the government told officials to pick up the pace, it led to a flood of hasty selling, and caused an “obvious substitution impact” on bank loans and corporate bonds, the PBOC said last week when it added the debt to its measure of total credit supply.

The slump in net corporate bond sales in September to 8.7 billion yuan from 338 billion yuan in August was “mainly due to the crowding-out effect from the surge in local government bond issuance on private sector financing,” according to Lu Ting, chief China economist at Nomura International Ltd. in Hong Kong.

The impact of land reserve bonds is limited as is their effect on investment data, according to a report by the fixed-asset research team at China Merchants Bank Co. in mid September.

“Land preparation isn’t included in the calculation of fixed-asset investment,” meaning the biggest share of government special bonds — land reserve bonds — can’t lift the headline investment growth number, analysts wrote in the report.

In addition, the long process from preparing land to initiating a project indicates the bonds probably won’t influence local infrastructure investment immediately.

“To some extent special bonds can supplement local fiscal strength, and we can’t overlook their effects on stabilizing and lifting overall investment spirits,” said Liu Peiqian, Asia strategist at Natwest Markets PLC in Singapore. “We expect infrastructure investment growth to rebound moderately toward the end of the year, but it won’t be back again to the double-digit growth of the past,” she said

“Land reserve bonds are favored because local officials don’t have enough projects in the pipeline when they’re being asked to speed up spending,” said Nie Wen, a Shanghai-based economist at Huabao Trust Co. “The direct impact on investment is limited,” he said. “If other funding channels for local governments remain tightly controlled, special bonds alone won’t be enough to restore growth.

Tax cuts, infrastructure spending and other fiscal stimulus measures are playing an increasing role in the efforts of Chinese policy makers to prevent the world’s second-largest economy from slowing further. But data released last week show that the impact of government spending has yet to kick in, with infrastructure investment sliding to the slowest growth since early 2014.

“Boosting spending in infrastructure will definitely have to rely on government” and special government bonds are an important source to replenish funding for that, said Li Peijia, a senior analyst at the Bank of China’s Institute of International Finance in Beijing.

China started to issue special bonds in 2015 to finance projects from highways to environmental facilities and affordable homes. Policy makers decide an annual quota in March each year. That has swollen over the years as local authorities grapple with worsening financing conditions as well as increasing downward pressure on the economy.

The spending is seen by some as a turbocharger in boosting investment, as it stays outside the official budget deficit, and it can leverage additional bank loans and even private capital in infrastructure projects.

This year the issuance of special bonds had a slow start amid attempts to clean up the nation’s finances. So when in late July the government told officials to pick up the pace, it led to a flood of hasty selling, and caused an “obvious substitution impact” on bank loans and corporate bonds, the PBOC said last week when it added the debt to its measure of total credit supply.

The slump in net corporate bond sales in September to 8.7 billion yuan from 338 billion yuan in August was “mainly due to the crowding-out effect from the surge in local government bond issuance on private sector financing,” according to Lu Ting, chief China economist at Nomura International Ltd. in Hong Kong.

The impact of land reserve bonds is limited as is their effect on investment data, according to a report by the fixed-asset research team at China Merchants Bank Co. in mid September.

“Land preparation isn’t included in the calculation of fixed-asset investment,” meaning the biggest share of government special bonds — land reserve bonds — can’t lift the headline investment growth number, analysts wrote in the report.

In addition, the long process from preparing land to initiating a project indicates the bonds probably won’t influence local infrastructure investment immediately.

“To some extent special bonds can supplement local fiscal strength, and we can’t overlook their effects on stabilizing and lifting overall investment spirits,” said Liu Peiqian, Asia strategist at Natwest Markets PLC in Singapore. “We expect infrastructure investment growth to rebound moderately toward the end of the year, but it won’t be back again to the double-digit growth of the past,” she said.