China Readies Fresh Easing to Tackle Specter of Debt

28—China’s central bank is readying its most aggressive easing tool since it launched a massive stimulus plan in 2008 to counter the global financial crisis, in a bid to help one of the government’s most important economic-rescue initiatives get off the ground.

Chinese leaders have singled out the ballooning debts of various levels of government as an economic threat that must be defused. But a debt-for-bond swap plan aimed at giving provinces and cities some breathing room has started to hit snags as many of China’s commercial banks are balking at purchasing the new bonds.

That is prompting the People’s Bank of China to speed up consideration of an innovative tool, according to officials with knowledge of the central bank’s deliberations. Under a Chinese version of strategies used in Europe’s bailouts, the PBOC would let commercial banks swap the local-government bonds they purchase for loans from the central bank, with the aim of keeping the debt-restructuring effort on track without causing a painful credit crunch.

…The sense of urgency is palpable at China’s central bank. To help get the program going, officials from various levels of government and Chinese banks in recent weeks have been lobbying the PBOC to expand its traditional methods to free up credit.

[source]

PG View: That’s going to leave the PBoC with some pretty dodgy assets on their balance sheet.

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