China is imposing a $160bn municipal-bonds-for-debt swap on banks in a bid to shift some of the financing costs of cash-strapped local governments back to lenders, local media reported on Wednesday.
Ballooning debts at municipalities — estimated at $2.9bn by mid-2013 as local governments engaged in a frenzy of debt-fuelled infrastructure building — have emerged as one of the fault lines in China’s economy as growth slows and property prices dip.
Beijing is seeking to limit debt servicing costs for municipalities by obliging banks to switch out loans, which frequently carry interest rates over 7 per cent, in return for municipal bonds with a capped coupon.
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