Directive 43, an order from China’s State Council banning local authorities from repaying debt owed by companies, has upended the US$820 billion market for bonds issued by firms specially created to help local governments get around limits on borrowing directly from banks, The Wall Street Journal reported. That directive also forbade governments from using such firms to raise debt and ordered them to restructure debt already issued through them, then banned the use of such lower-rated corporate bonds as collateral for loans on the country’s stock exchanges. Such a lockout could generate enormous risks for investors holding such bonds for their high returns and perceived safety as government-guaranteed securities.
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