Type to search

China Cracks Down on Issuing of 364-Day Offshore Bonds

Regulators have ordered local government funding vehicles to stop issuing 364-day offshore bonds, which were undertaken via a loophole last year

China construction workers
Regional banks have the highest exposure to Local Government Funding Vehicles, which were set up to pay for infrastructure projects by many provinces, but are now saddled with debt. A report by S&P Global Ratings said the central bank may need to help those in greatest need. Photo: Reuters.


Chinese regulators have ordered local government entities to stop issuing offshore bonds with a 364-day duration.

The move shuts a regulatory loophole that had allowed heavily indebted local government funding vehicles (LGFVs) to increase borrowing further last year, sources have revealed.

LGFVs were set up by Chinese provincial and local governments to fund infrastructure, and their combined debt has ballooned to roughly $9 trillion, posing a major risk to a slowing economy.


ALSO SEE: China Evergrande Fiasco Worsens, With Arrest of EV Unit Exec


China has rolled out several measures to resolve local government debt risks, and new issuance of LGFV debt is tightly regulated.

The latest guidance comes after a rush by many LGFVs to raise 364-day offshore bonds, seemingly in a bid to circumvent regulation that requires them to seek approval for offshore borrowings with maturities longer than a year.

LGFVs have found onshore financing challenging, and they also have to seek approval from regulators such as the National Development and Reform Commission (NDRC) to issue offshore debt, unless the tenor of the bond is less than a year.

The NDRC published regulations on medium and long-term foreign debt in January 2023, but said offshore debt financing with maturities of less than one year was not subject to approval.


27 LGFV bonds took advantage of loophole

That loophole led to 27 offshore LGFV bonds with a duration of 364 days being issued in 2023, most of them after October and with yields over 6%, data from TianFeng Securities showed.

“The issuance of 364-day offshore LGFV bonds has been stopped,” one source at a brokerage that is familiar with LGFV issuance said.

“Such bonds were not regulated and were obviously contrary to the direction of government’s debt resolving efforts.”

Shandong Province issued the most 364-day bonds, with 12 issues that raised more than $1 billion.

“Such offshore bonds certainly came with risks. It’s not realistic that you can easily get double-digit yields on these bonds,” another source at a private fund said.

The NDRC and currency regulator State Administration of Foreign Exchange (SAFE) did not immediately reply to Reuters’ requests for comments.


  • Reuters with additional editing by Jim Pollard




China to Issue More Government Bonds to Tackle Debt Crisis


China Facing Reality Check After Long Boom Built on Debt


Multiple Moves Needed to Defuse China’s Local Debt Crises


China Asks Banks to Roll Over $13tn Local Debt at Lower Rates


China’s Property Sector Will Remain Weak For Years: Goldman



Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


AF China Bond