China's promised 'basket of measures' to defuse local government debt risks is likely to include special bond issuance, debt swaps, loan rollovers, and something Beijing really loathes: dipping into the central budget.
Coins and banknotes of China's yuan are seen in this illustration picture taken February 24, 2022. REUTERS/Florence Lo/Illustration/File Photo/File PhotoLatest Politburo stance suggests Beijing may be ready to step inMeasures could involve state bank loans, special bonds
Economists took that message as being more constructive than in April, when Communist Party leaders demanded "strict control" of local debts. The implication, they say, is that Beijing has realised it needs to urgently throw cash at the problem. These details will be key for investors to gauge how decisive and long-lasting Beijing's solution will be.
"A principle should be established: not all debt will be assumed by the central government," a policy adviser told Reuters on condition of anonymity.To avoid that risk, the adviser suggested all stakeholders bear some of the burden: financial institutions, local governments, Beijing and society at large.
Then comes frugal Beijing, which has most room for manoeuvre, with a central government debt of only 21% of GDP.
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