China's NDRC could relax rules for bond sales

There are reports that China's NDRC (National Development and Reform Commission) could relax bond issuance requirements to boost investment funding and credit growth. This should make it easier for the local governments to sell bonds. 

Commerzbank expects the possible changes include 

i) raising the outstanding debt allowance for local governments to 12% of GDP from 8% previously

ii) lowering the debt-to-asset requirement ratio for AAA-rated bonds to 65% from 75% currently

iii) removing limits on the number of note sales for government-favoured investment projects. 

The favoured projects include investments in seven key industries, including oil and gas pipelines, healthcare, and clean energy. 

The proposed changes are consistent with recent actions from the authorities to address the downside risks to growth near term.

These include interest rate and RRR cuts and allowing local governments to increase borrowing to help fund infrastructure projects. Earlier in January, NDRC had said it will accelerate some 300 infrastructure projects worth around CNY7trn which it also oversees. It will be a fine balancing act for the authorities, juggling between economic restructuring and limit the risks of elevated local government debt against supporting growth. 

The government is targeting around 7% growth this year but the employment picture will be equally important to track where reports of increased retrenchments will probably see the authorities step up stimulus efforts. For USD-CNY, it continues to hold steady at around the 6.20 level.