China to replace $140 billion LGFV debt with local bonds - Bloomberg News

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BEIJING (Reuters) -China will let local governments raise about 1 trillion yuan ($140 billion) through bond sales to repay the debt of local-government financing vehicles (LGFVs) and other off-balance-sheet issuers, Bloomberg News reported on Friday.

Debt-laden municipalities represent a major risk to China's economy and financial stability, economists say, after years of over-investment in infrastructure, plummeting returns from land sales and soaring COVID-19 costs.

The International Monetary Fund estimates 66 trillion yuan ($9.1 trillion) in total debt is held by LGFVs, which cities use to raise money for infrastructure projects critical to the country's development.

The finance ministry has informed relevant authorities about the «refinancing bonds» programme, Bloomberg said, citing unnamed people with knowledge of the matter. Quotas have been set for each region, it added.

The ministry did not immediately respond to a request for comment.

Chinese leaders last month pledged to unveil a «basket of measures» to tackle local debt risks, without announcing details, signalling worries that a potential chain of municipal debt defaults could destabilise the financial sector and put more pressure on the sputtering economy.

Policy advisers and economists have said measures are likely to include debt swaps, loan rollovers and possible debt issuance by the central government to bail out some localities.

The reported new step would be small — 1 trillion yuan is just 1.5% of the estimated total LGFV debt.

LGFVs play a key role in infrastructure projects, which are a major growth driver for the world's second-largest economy. But some analysts say they have become the «black holes» of the country's financial system, with surging