China has drafted a proposal to allow some provincial and city governments to sell bonds on a trial basis, Bloomberg reported. According to the National Audit Office, local governments created 6,576 financing vehicles by the end of 2010 to pay for projects such as new roads and airports, leading to a debt of about US$1.65 trillion. Roughly US$1.32 trillion of this figure was from bank loans. The sale of municipal bonds may help ease worries that defaults could result in China’s third banking bailout in less than 20 years. “To avoid a bank default, we believe the authorities need to take decisive action to restructure local debt,” Qu Hongbin, chief China economist at HSBC Holdings, wrote in an August 1 report. “We see the issuance of municipal bonds as the best option.”
Categories