China is tightening controls on local government debt, requesting banks to refrain from underwriting bonds with maturities of less than two years to reduce reliance on short-term debt for financially weak entities and accelerate the resolution of accumulated LGFV debt exceeding 16 trillion yuan.
On July 9, 2569 at 11.14:XNUMX p.m., Bloomberg News reported that China continues to move forward with controlling debt risks for local governments. According to sources, The National Association of Financial Market Institutional Investors (NAFMII), which oversees the interbank bond market, asked some banks this week not to guarantee the issuance of new bonds with maturities of less than two years.
These measures will put further pressure on Local Government Financing Vehicles (LGFVs), which often rely on issuing short-term bonds to refinance existing debt, as investors remain concerned about the long-term debt repayment ability of these issuers.
This latest move aligns with the Chinese government's efforts to manage the massive debt accumulated in LGFVs, a key mechanism used by local governments to raise funds for infrastructure projects such as railways, water systems, and other utilities.
Previously, Chinese authorities had also implemented measures to restrict fundraising in high-interest foreign markets in order to control high-cost debt and reduce reliance on borrowing sources, especially for LGFV (Low-Cost Value Investors).
Data compiled by Bloomberg indicates that LGFV currently has approximately 790 billion yuan (around US$116 billion) in outstanding bonds with maturities of up to two years, 92% of which are listed and traded on the interbank bond market, and approximately 65% of these bonds are due for redemption this year.
While LGFV's total bond debt amounts to approximately 16 trillion yuan, around 5 trillion yuan of this amount will mature before the end of 2570.
Previously, the LGFV sector was viewed as one of Asia's most significant financial risks. However, borrowing costs for this sector have fallen to record lows after the Chinese government instructed banks and local authorities to assist LGFVs in repaying domestic and international debt maturing by June 30, 2570.
Furthermore, last month, Chinese authorities ordered domestic credit rating agencies to reduce the concentration of AAA credit ratings in the bond market by reviewing issuers under their rating to reassess whether they still meet the new criteria for AAA credit ratings.
refer : bloomberg.com
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