China will encourage banks, brokerages, insurers and individuals to invest more in local government bonds as part of steps to shore up their bond issuance, the finance ministry said on Tuesday. Beijing has pushed to get local governments' borrowing under control and make their finances more transparent as part of a broader campaign to contain a rapid-build up in debt and reduce risks to the financial system.
China has capped the outstanding local government debt at 21 trillion yuan ($3.30 trillion) for 2018, according to the annual budget report. China will encourage commercial banks, securities and insurance firms, and individuals to "fully participate in local government bond investments", the ministry said its guidelines for local government bond issuance this year.
The ministry also said it will consider allowing over-the-counter sales of local government bonds to make it easier for non-financial institutions and individuals to buy them. In addition, China hopes to attract foreign financial institutions to participate in the underwriting of local government bonds in free trade zones.
In principle, the quarterly bond issuance for each local government will be kept within 30 percent of the total quota for the region, the ministry said. China will add 2-year, 15-year, 20-year general local government bonds and 15-year, 20-year special bonds, the ministry said. Local governments must ensure their debt swap schemes to be completed on schedule, the ministry said, without elaborating.