AUGUSTASIA BUSINESS OUTLOOK9NEWSROOMCHINA GOVERNMENT PERMITS LOCAL GOVERNMENTS TO RAISE CNY 1T VIA BOND SALESCHINESE STOCK EXCHANGES TO ATTEMPT LIQUIDITY EASING BY REDUCING TRADING COSTSBased on sources, China will allow local governments to raise approximately 1 trillion yuan ($140 billion) through bond sales to repay the debt of local-government financing vehicles (LGFVs) and other off-balance-sheet issuers.Municipal debt poses a significant risk to China's economy and financial stability, according to economists, following years of overinvestment in infrastructure, plummeting returns on land sales, and skyrocketing COVID-19 costs.According to sources familiar with the matter, the finance ministry has informed relevant authorities about the "refinancing bonds" programme, and quotas have been set for each region.Last month, Chinese leaders pledged to unveil a "basket of measures" to address local debt risks without providing specifics, indicating concerns about a potential chain of municipal debt defaults destabilising the financial sector.According to policy advisers and economists, measures to bail out some municipalities are likely to include debt swaps, loan rollovers, and possible central government debt issuance.The reported new step would be small - 1 trillion yuan is only 1.5 percent of the 66 trillion yuan ($9.1 trillion) in total debt held by LGFVs, which cities use to fund infrastructure projects, according to the International Monetary Fund.LGFVs play a key role in those projects, a top growth driver for the world's second-largest economy. But some analysts say they have become the "black holes" of the country's financial system, with the surging debt loads and weak revenues beginning to alarm investors. The Shanghai and Shenzhen stock exchanges announced late Aug 10 that they would investigate measures to reduce investors' trading costs and improve liquidity in order to further stimulate the market.Allowing investors to place smaller orders in auction trading and improving trading mechanisms for exchange-traded funds (ETFs) are among the measures. The exchanges also changed their rules to allow for the faster development of index funds.The announcements came after top Chinese leaders pledged to "invigorate capital markets and boost investor confidence" at the July politburo meeting, as Beijing struggles to revive flagging economic growth.They also came after China's securities regulators pushed mutual fund managers to reduce fees in order to cut trading costs.Shanghai and Shenzhen stock exchange said in identical statements on Thursday that they would "roll out a series of measures to stimulate market vigour, lubricate trading, and increase market appeal."More specifically, investors trading stocks or listed funds would be allowed to place orders of a minimum of one share, or one unit. Currently, each order must be in blocks of 100 shares or units. Such a change would reduce investors' costs, enable more efficient use of capital, and help improve market liquidity, the bourses said.In addition, the exchanges said they would study after-hours fixed price trading mechanism for ETFs, which will would reduce price fluctuations.
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