BEIJING, May 15 (Reuters) - China’s central bank will not inject a “specific amount” of liquidity under a programme of allowing commercial banks to secure borrowings with local government debt, Pan Gongsheng, a vice central bank governor, said on Friday.
The Ministry of Finance has allowed local governments to swap 1 trillion yuan ($161 billion) worth of maturing, high-interest local debt for new municipal bonds to reduce interest costs, but demand for such bonds has been weak.
To drum up buying interest from banks, China is set to let banks use municipal bonds as collateral for borrowing, according to sources and an official document seen by Reuters. This could pump-prime a fledgling market Beijing hopes will help local authorities manage their unwieldy debts.
Local government debt’s qualification for being collateral “does not mean that the central bank will inject a specific amount of liquidity”, Pan told a news briefing.
Pan said he expected the debt swap programme to be successful as banks are keen to participate.
The authorities will take steps to rein in risks in loan asset securitisation by avoiding complex products, drawing a lesson from the U.S. subprime crisis, Pan said. (Reporting by Kevin Yao; Editing by Richard Borsuk)