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Policy Confusion Reigns As China Caps Muni Debt, Uncaps Bank Debt, And Bad Loans Soar

Last week, China moved to increase the quota for issuance under the country’s local government debt swap program to CNY3.2 trillion. The program, designed to help the country’s local governments crawl out from under a debt burden that amounts to more than 30% of GDP, allows provincial governments to issue bonds with yields that approximate the yield on central government debt and swap the new bonds for outstanding LGFV loans which generally carry higher interest rates.
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