China’s financial regulators told its policy banks and biggest lenders to issue new loans to cover offshore debt issued by local governments maturing this year and in 2024, ramping up efforts to ease a credit crunch for highly indebted municipalities.
(Bloomberg) — China’s financial regulators told its policy banks and biggest lenders to issue new loans to cover offshore debt issued by local governments maturing this year and in 2024, ramping up efforts to ease a credit crunch for highly indebted municipalities.
After earlier urging banks to roll over debt and extend maturities, regulators, including the National Administration of Financial Regulation, recently issued clearer directives to extend local government debt at lower interest rates, people familiar with the matter said, asking not to be named discussing an internal order. It also stipulated that local governments would repay a certain amount of the principal annually.
The lenders were also told to issue loans to replace non-standard, high-interest rate debt of local government financing vehicles as a way of supporting 12 especially at risk regions, the people said. The central bank is setting up an emergency loan facility to provide support for local governments with repayment difficulties.
The NAFR didn’t immediately reply to a request for a comment. The order was earlier reported by Reuters.
The move comes after Beijing allowed provincial-level governments to raise about 1 trillion yuan ($137 billion) via bond sales to repay the debt of local government financing vehicles. China’s regulators have been walking a tight rope between supporting the struggling economy and preventing various risks from challenging financial stability.
China’s biggest state banks have been offering local government financing vehicles loans with ultra-long maturities and temporary interest relief to prevent a credit crunch since the second quarter, Bloomberg reported in July.
LGFVs, created to fund infrastructure development in China, have been under intense financial pressure as an economic slowdown hit revenue, with a protracted real estate crisis undermining income from land sales. The country’s LGFVs are estimated to be sitting on some $9 trillion in debt.
China’s economy showed signs of improvements in the third quarter. Gross domestic product grew 4.9% in the period from a year earlier, data from the National Bureau of Statistics showed Wednesday. Compared to the second quarter, GDP grew 1.3%.
Retail sales jumped 5.5% in September, well above forecasts and the highest reading since May. The jobless rate inched down to 5%, the lowest since November 2021.
–With assistance from Amanda Wang and Zhang Dingmin.
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