China’s local government debt causing PBoC to look at options
(1 May 2015 – China) Local-government debt in China is said to have surged, prompting the People’s Bank of China (PBoC) to consider expanding its Pledged Supplementary Lending (PSL) program.
If the PBoC did expand the program, it could encourage banks to buy local government bonds, as a way to boost liquidity.
At present liquidity in the bond market is deeply affected by capital flowing out of China, as the economy slows and the stock market booms.
This year, local governments are expected to sell more than RMB1.7 trillion (A$342 billion) in municipal bonds this year.
China announced plans in October last year, to cap the amount of debt local governments can take on, and said all borrowings by provinces and cities will need to be within a certain quota set by the State Council, China’s cabinet and approved by the National People’s Congress, its national legislature.
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