BEIJING, Aug 27 (Reuters) - China has expanded its debt-for-bond swap programme for local governments to 3.2 trillion yuan ($499.7 billion) from 2 trillion yuan, state news agency Xinhua quoted Finance Minister Lou Jiwei as saying on Thursday.
The programme, which is meant to ease the financing pressure on China’s heavily indebted local governments, has been steadily expanded from a trillion yuan to account for the municipal debt load.
As negative economic data mounts, the government is seeking to ramp up financing to local governments in the hope of pushing up government spending and supporting growth.
Local government financing vehicles (LGFVs) ran up debts of $3 trillion as of the end of June 2013, largely to support inefficient building projects, prompting Beijing to crack down on their reliance on shadow banking.
The government offered up the debt-for-bond swap programme as an alternative to funding LGFVs, initially without much effect, as banks hesitated to buy the low-return, poor-quality assets.
After fiscal spending contracted in the first quarter, partly due to debt pressure on local governments, Beijing finally kickstarted buying in May when it agreed to let banks count the new municipal bonds as guaranteed collateral with the central bank.
However, signs still point to the economic slowdown deepening in spite of a slew of policy measures in the past year to try to put a floor beneath the economy.
A private survey showed activity in China’s factory sector shrank at its fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled.
In its latest measure, the Chinese central bank cut benchmark interest rates and reserve requirements for financial institutions on Tuesday.
$1 = 6.4038 Chinese yuan renminbi Reporting by Koh Gui Qing and Jake Spring; Editing by Nick Macfie