China Economic Review

Beijing to make it easier for banks to buy local government debt

State finance regulators are scrapping limits to the volume of local government bonds banks can buy in a bid to help authorities access capital for investment purposes, according to Caixin.

The previous quota of 20% of a local government’s issued bonds to be bought by a single lender has been dropped completely, six years after the measure was introduced to stop banks buying risky securities which they themselves underwrote.

The move is in line with a wider push by policymakers to speed up the sales of local government bonds. Earlier this week, China’s Ministry of Finance reportedly made controversial plans to equate the risk ratings of local government bonds with state government bonds at 0%.

China has been hit with concerns of an economic slowdown following several months of disappointing performance data, pointing to sluggish demand in the world’s second-largest economy.

Beijing’s efforts to curb the nation’s escalating debt problems at the beginning of the year have restricted financing channels for certain sectors of the economy, including local governments. Adding to this, sentiment has weakened amid trade tensions with the US.