China is set to boost local debt swap by admitting municipal bonds as collateral for borrowing. Under the new rule, banks can pledge municipal bonds as collaterals in the central bank's repurchase agreement operations and other liquidity support tools such as standing lending facility (SLF), medium-term lending facility (MLF) and pledged supplementary lending (PSL), reported Sina citing an inside document.

 

Municipal bonds will also be considered as eligible collaterals for liquidity management in central treasury and local treasury of pilot regions, according to the news.

 

The Finance Ministry in March announced a 1 trillion CNY (164 billion USD) debt-for-bonds swap plan that would save local governments up to 50 billion CNY in interest payments a year.

 

Jiangsu province delayed a 64.8 billion CNY bond issuance on 23 April after failing to agree with banks on the issuance price.

 

China plans to complete the first batch of the swap worth 1 trillion CNY by the end of August.

 

The National Audit Office said that local government debt stood at around 10.9 trillion CNY by the end of June 2013. A total of 1.86 trillion CNY is due by the end of this year.

 

Since China launched a pilot program lifting local bond issuance among 10 provincial-level governments in May last year, 109.2 billion CNY municipal bonds were issued in 2014. 

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