Local authorities to get US$160b debt swap line
Print Edition
THE Ministry of Finance’s 1 trillion yuan (US$160 billion) debt swap line has been assigned to local governments, said regional deputies yesterday to China’s annual legislature session still going on in Beijing.
The Ministry of Finance has confirmed a debt restructuring program that lets local governments convert some of their most urgent debts into municipal bonds with a longer tenor.
The ministry has confirmed a swap totaling 1 trillion yuan that will begin this year. Each province or region will be assigned a quota for replacing its soon-to-mature debts with bonds issued to commercial banks and other financial institutions.
So far 50 billion yuan has been granted to Guangdong Province, 40 billion yuan earmarked for Shandong, 30 billion yuan for Anhui, and 20 billion yuan for Jiangxi, the Economic Information Daily, a Xinhua news agency-affiliated business newspaper, reported yesterday, citing local deputies to the National People’s Congress.
The restructuring quota is granted based on existing liabilities set to mature this year, said Zeng Zhiquan, director of Guangdong’s department of finance.
The debt restructuring program also triggered a rally of banking shares on the Chinese mainland yesterday as investors view it as a positive move to improve bank balance sheets, especially those that have lent heavily to local governments.
A government audit of local government debt as of June 2013 shows 2.78 trillion yuan of debts will mature this year, two-thirds of which are a direct liability for local governments. Total debt for local governments, including contingent liabilities, stands at 17.9 trillion.
The ministry says the restructuring program will save local governments up to 50 billion yuan in interest payments.
Extending the maturity of debt will significantly ease the burden for local governments.
A projection shows that the debt repayment will be cut by 50 percent in the next three years if tenors are extended from three years to seven, says China economists Liu Ligang and Zhou Hao at Australia & New Zealand Banking Group.
600b yuan quota
China has also earmarked a 600 billion yuan quota for local government debt this year and has expanded its municipal bond pilot scheme to wean local governments from unsustainable and risky borrowing via designated financing vehicles.
Up to 70 percent of financing vehicles that raise funds on local governments’ behalf have borrowed new loans to service old debts from 2011 to 2013, Moody’s Chinese mainland rating arm CCXI found in an analysis of more than 1,100 local government financing vehicles’ balance sheets.
Authorities also drafted guidelines last year to urge private funds in infrastructure and utilities to ease local governments’ spending in the hope that alternative funding will cut their financing needs.
The debt-to-bond swap fueled speculation that China’s central bank may buy bonds issued by local governments, a move that many likened to the quantitative easing in the United States.
But officials quickly dismissed any notion of a Chinese QE, saying the law bars its central bank from buying sovereign bonds from any country, including those issued by the Chinese government.
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