PBOC allays fears over bond swap plan

The 1 trillion yuan ($161 billion) debt-for-bond swap plan will not involve massive liquidity injection into the financial market, and the central bank remains confident about its success, a top official said.

Pan Gongsheng, deputy governor of the People's Bank of China, the central bank, on Friday confirmed the widely reported plan at a news conference, ending speculation on how the central bank would manage the unwieldy bond sale. The comment also put to rest fears that the PBOC may resort to massive liquidity injections through the Chinese form of quantitative easing.

Earlier reports said the Ministry of Finance, the PBOC and the China Banking Regulatory Commission have jointly issued a landmark document, which established detailed measures for promoting bond issues by local governments. At the center of the plan is a requirement that banks have to accept a minimum amount of bond placements, as defined by their pro rata share of the issuing local government's total debt to be swapped.