Goldman: Policymakers Stepping Up Efforts On Local Government Debt Resolution

Goldman Sachs note that “offshore media reports today suggest China has allowed provincial-level governments to raise around CNY1tn via refinancing bond sales to repay local government implicit debt.”

• “This signals that concrete efforts are underway to mitigate local government debt risks, echoing the statement in the July Politburo meeting readout.”
• “The reported CNY1tn refinancing bond quota, if it were to materialize, would help alleviate near-term risks of LGFV bonds, but we believe it would be insufficient to fully address LGFV related risks on its own.”
• “We expect more policy actions in coming months/quarters, as part of China's local government debt resolution plan.”
• “On the back of still-weak growth momentum, elevated property stress, and easier policy rhetoric, we maintain our forecast of a 25bp RRR cut in Q3, a 10bp policy rate cut in Q4, an additional RMB500bn LGSB quota beyond this year's budget to support fiscal spending, and more housing easing through the remainder of this year.”