Beijing curbs bond issues on default fears
Regulator stops approving note sales for lower-level governments, targeting shell companies
The mainland's bond regulator has stopped approving debt sales by governments below provincial level, underscoring concerns of defaults arising from a flood of bond issues by local government financing vehicles this year.
The National Association of Financial Market Institutional Investors, appointed by the central bank to supervise the interbank bond market, had suspended applications to issue medium-term bills by local governments other than provinces, municipalities, provincial capitals and other specially designated cities, industry sources said.
The suspension, expected to last until the end of next month, was aimed at controlling risk after "shell companies" without any cash flows or assets applied to issue debts on behalf of some local governments, a source close to the association said.
The association was not available for comment yesterday.
Beijing has tightened bank credits to local government financing vehicles after a lending spree in 2008 and 2009 resulted in swelling bad loans.
These vehicles borrow on behalf of local governments as the latter are not allowed to raise debt directly.
The proceeds are then used to fund projects, including roads, railways and airports, to help economic expansion.