China will continue to swap local governments’ unofficial liabilities for government bonds in 2019 to give them more financial breathing room as economic growth is anticipated to slow even further, according to Premier Li Keqiang’s annual report to the country’s top legislature on Tuesday, reported Caixin.
Weaker economic growth will likely weigh on China’s debt-laden local governments because it squeezes their income growth at a time when they have to spend more to drive investment to support expansion.
“We will continue the issuance of some local government bonds to replace outstanding debts in order to reduce the interest payment burdens of local governments,” Li said at the opening of the annual session of the National People’s Congress.
The debt-to-bonds policy primarily aims to reduce interest costs, increase transparency about local fiscal liabilities, and help local governments tackle the mismatch in maturities between their debt and the assets they invested in with borrowed money.
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