Local government debt relief
Print Edition
CHINA will let local governments convert up to 1 trillion yuan (US$160 billion) in debt to lower interest bonds as it seeks ways to ease their massive debt burden without crippling the broader economy.
Beijing is struggling to rein in local government debt, estimated around US$3 trillion. Local governments rushed to finance infrastructure and real estate projects, especially after the 2008/09 global financial crisis, in efforts to stimulate economic growth.
The Ministry of Finance said in a statement that local governments will be permitted to convert a portion of their maturing high-interest debt into lower interest municipal or provincial bonds.
Bond prices reacted strongly to the news. Treasury futures for June delivery fell by as much as 0.59 percent yesterday, the largest intraday move in three months.
“Interest rates for government debt are usually lower, and this procedure will lower the local government debt burden by around 400-500 million yuan a year,” the ministry said.
“This will help relieve some of the pressure on local government finances, and also provide some of the capital for other expenditures.”
Local government finances have been strained over the past year as the non-bank financing platforms they have relied upon to plug holes in their budgets have become a target of regulators concerned with surging local government debt.
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