Lenders encouraged to buy more local government bonds

China's 1 trillion yuan ($161 billion) local government bond plan is likely to get a new lease of life.

Designated State-owned banks may soon be able to swap loans for bonds issued by local governments in the debt exchange plan, the Economic Information Daily reported, citing sources close to the Ministry of Finance.

If this is the case, it would be a substantial change in the way the system operates. As it stands, local governments sell low-yield bonds to whatever banks who are interested in the bonds and then use the money raised to repay legacy debt to creditors, mainly banks.