China to allow provincial govts to raise $139 billion via bonds to repay debt

China will allow provincial-level governments to raise about $139 billion (around 1 trillion yuan) to repay the debt of local-government financing vehicles and other off-balance sheet issuers. Citing anonymous sources, a report by the news agency Bloomberg on Friday (August 11) said that the Chinese finance ministry informed relevant authorities about the refinancing bonds programme.

The quota has been set for each region, one of the sources told Bloomberg and refused to elaborate. The finance ministry has not commented on this development yet.

Provincial govts to use bonds to repay 'hidden debt'

Another source told Bloomberg that all provincial governments but Beijing, Shanghai, Guangdong and Tibet will be able to use the bonds to repay off-balance sheet liabilities which are also known as hidden debt in China.

The authorities identified 12 provinces and cities as high-risk areas where more support will be provided including the provinces of Guizhou, Hunan, Jilin and Tiajin city. The report added that the programme will in effect bail out weaker issuers, including local-government financing vehicles (LGFVs), shifting the debt burden to provincial governments instead.

The programme comes weeks after the ruling Communist Party’s Politburo had said it would use a package of measures to resolve local government debt. The amount covered under the debt swap programme is a drop in the bucket compared to the 66 trillion yuan the International Monetary Fund (IMF) estimates local government financing vehicles will hold by the end of this year.

The report pointed out that the programme might help defuse the risks of default faced in the regions where it is implemented. It can also bring down the financing costs on hidden debts, give local governments more time to repay, and improve funding conditions in those places.

It is not yet clear how provinces will distribute the quote between different LGFVs under jurisdiction as some LGFVs are owned at the provincial level while owned by city governments or the central government.

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