China launches debt-for-bond swap program to help local governments repay debts
BEIJING–China is launching a broad stimulus to help local governments restructure trillions of dollars in debts while prodding banks to lend more, as fresh data added to signs of a worsening slowdown in the world’s second-largest economy.
In a joint directive marked “extra urgent,” China’sFinance Ministry, central bank and top banking regulator laid out a package of measures to jump-start one of the government’s most important economic-rescue initiatives: a debt-for-bond swap program aimed at giving provinces and cities some breathing room in repaying debts.
Central to the directive is a bigger-than-expected plan by the People’s Bank of China that will let commercial banks use local-government bailout bonds they purchase as collateral for all kinds of low-cost loans from the central bank. The goal is to provide Chinese banks with more funds to make new loans. The directive was issued earlier this week to governments across the country and reviewed by The Wall Street Journal.
The action marks the latest in a string of measures taken by Beijing to boost economic activity, including three interest-rate cuts since November. But those steps so far have failed to spur new demand, in part because heavily indebted Chinese companies and local governments are struggling with repaying mountains of debt. At the same time, borrowing costs remain high, as low inflation makes it more difficult for businesses and consumers alike to service debt. Banks are reluctant to cut lending rates amid higher funding costs and rising defaults.
