China lets local governments swap debt into municipal bonds

Beijing

CHINA will allow regional authorities to convert some high-yielding debt into municipal bonds in a bid to cut financing costs on liabilities that brokerages say have topped US$3 trillion, sparking speculation investors may shoulder losses.

The government will permit as much as one trillion yuan (S$220 billion) of the obligations to be swapped into local-government notes that have lower yields, the finance ministry said in a statement on its website dated March 8. That may reduce interest payments by as much as 50 billion yuan a year, allowing authorities to boost spending, it said. The statement didn't specify what kind of debts and creditors are involved.

China is seeking to rein in local-government borrowing while accelerating fiscal spending to defend a 7 per cent economic growth target. The debt swelled to 17.9 trillion yuan as at June 2013, according to data compiled by the National Audit Office. The liabilities may have already reached 25 trillion yuan, bigger than the size of the German economy, according to estimate…