PBOC to Extend Emergency Liquidity Support to Local Governments

Governor Pan Gongsheng of the People’s Bank of China (PBOC) recently reaffirmed the central bank’s dedication to providing emergency liquidity support and enhancing credit assistance for local governments and property developers facing heavy debt burdens. This announcement was made during the Annual Conference of Financial Street Forum 2023.

In 2023, Chinese financial regulators and related authorities have taken various steps to address the risks linked to local government debts. These initiatives include transitioning Local Government Financing Vehicles (LGFVs) into financially independent, market-oriented entities, which aim to lessen their dependence on government credit and encourage financial self-sufficiency.

During his speech, Gongsheng highlighted that the central bank would support debt resolution strategies, including extending maturities, refinancing, and swapping debts for financial institutions. He also pointed out that restrictions have been enforced to prevent heavily indebted local governments from initiating new investment projects.

Furthermore, Gongsheng noted that China’s government debt is relatively moderate on a global scale. He urged local governments and LGFVs to leverage earnings related to their assets for debt repayment as part of their strategies to manage financial obligations.