Moody’s Says China’s Local Government Debt Restructuring Is Cutting Risk

Fears China’s debt mountain will turn into an avalanche have hit the headlines recently, but there are signs at least some of the risk is easing.

That’s in part due to the mainland’s efforts to restructure its huge pile of local government debt, Moody’s Investors Service said in a Monday report.

Nicholas Zhu, senior analyst at Moody’s, said, “For the local government direct debt, we believe the government is finding a handle by capping it at 16 trillion yuan ($2.45 trillion) overall and improving the structure by swapping some existing debt into bonds at lower cost and longer maturity.”

If 2016 bond issuance remained steady at the 3.8 trillion yuan issued in 2015, Moody’s estimated that about 54 percent of regional and local governments’ (RLGs) direct debt would be shifted into bonds paying lower interest and with longer maturities and away from bank loans and financing vehicles.

Provincial governments’ debt, often issued via local government financing vehicles, or LGFVs, has worried economists for years.


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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.