China curbs short-term bond sales by local government financing vehicles, sources say

China's interbank bond market regulator has sent guidance to curb short-term bond issuance by local government financing vehicles (LGFV), sources said, in Beijing's latest effort to reduce debt risks.

The National Association of Financial Market Institutional Investors (NAFMII) has recently asked LGFVs to issue refinancing bonds with tenors of two years or longer, effectively discouraging short-term bond issuance, according to sources.

NAFMII, supervised by China's central bank, has also tightened vetting for bonds issued by LGFVs, which are financing platforms by local governments, the sources said.

NAFMII did not immediately respond to a Reuters request for comment. The sources spoke on condition of anonymity due to the sensitivity of the matter.

China is accelerating a push to defuse hidden local government debt risks, urging LGFVs to transform into market-driven companies by the end of 2027.

Regulators are keen to avoid a wave of newly issued short-term debt coming due in 2027, one of the sources said.

However, the guidance, coupled with stricter scrutiny of refinancing bond sales, could tighten liquidity conditions for LGFVs.

China's state planner said in a March report that it will work to defuse hidden local government debt risks at a faster pace, and take orderly steps to reform these platforms.

LGFV debt totaled 14.8 trillion yuan (HK$17.07 trillion) at the end of 2024, down 25 percent from early 2023 levels, according to official data.

Reuters
 

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