China Pours On Liquidity To Put Out Stock Market Brush Fire, Talks of Doubling Debt Swap

Federal Reserve: You said cowbell, we heard debt.
ECB: We're going to need a bigger debt.
BOJ: CTRL-P Since 1993
PBOC: We don't make a lot of the debt you buy, we make a lot of the debt you buy, bigger.

China central bank provides pledged supplementary lending to select banks

China's central bank has recently provided Pledged Supplementary Lending (PSL) to select banks, two sources with direct knowledge of the matter told Reuters on Monday, as Beijing moves to support longer-term investment amid a slowing economy.

The funds were provided at 3.10 percent, lower than previous PSL rates offered that they were aware of, the individuals with direct knowledge of the matter told Reuters.

The People's Bank of China did not answer calls requesting comment.

The 3.1% rate represents a 31% cut in interest costs. Last year, the PSL was at a rate of 4.5%.

Bloombgerg: China Considers Doubling Its Local Bond-Swap Program

Chinese policy makers are considering plans to as much as double the size of a clean-up program for shaky local government finances, according to people familiar with the discussions.

In what would be the second stage of the program, a further 500 billion yuan ($81 billion) to 1 trillion yuan of local-government loans would be authorized to be swapped into bonds issued by provinces and cities, the people said, asking not to be named because the talks are private. The first stage of the bond swap, currently under way, is 1 trillion yuan.

An expansion would signal officials are confident in the template they’ve crafted for reducing risks from a record surge in borrowing that local authorities took on to fund a glut of investment projects. The complex process -- which includes inducements for banks to buy new, longer-maturity, lower yielding bonds -- is alleviating a funding crunch among provinces that had threatened to deepen the economy’s slowdown.

“It’s solving the cash-flow issue at the local governments and ensuring that infrastructure projects this year aren’t delayed,” said Nicholas Zhu, a Beijing-based senior analyst at Moody’s Investors Service, referring to the initial 1 trillion-yuan program. He said any additional quota probably would be for debt swaps in 2016.

Worry over slowing economic growth is the main impetus for pushing more lending.

China factories scrabble for growth in May, export demand shrinks

Growth in China's giant factory sector edged up to a six-month high in May but export demand shrank again, prompting companies to shed jobs and keeping alive worries about a protracted economic slowdown, a government survey showed on Monday.

In a sign that China's worst downturn in at least six years is hurting its services companies, too, a similar survey showed growth in that sector slipped to a low not seen in more than five years.

Services have been one of the lone bright spots in the Chinese economy in the last year.

The muted reports reinforced the view that authorities would have to roll out more stimulus in coming months, despite having cut interest rates three times in six months.