Chinese authorities have removed the last hurdles on a massive local government debt swap that should also jump start the growth of a market-driven municipal bond market.
"It's an important step forward for China," RiverFront Investment Group's director of international portfolio management Chris Konstantinos told CNBC. "It's proof the authorities are willing to take pro-active steps to try to deal with the problem of municipal debt," he said.
China's economy may be slowing, but the country is making progress on tackling a ticking fiscal time bomb by restructuring part of local municipalities' bank debts into bonds.
After a government audit last year uncovered a massive web of municipal debt in the shadow banking system, Chinese authorities have been preparing to bring some of that borrowing, officially of 10.8 trillion yuan ($1.74 trillion), back into the formal system.
The first step was to roll over one trillion yuan of local government debt owed to banks into municipal bonds. Having run into some resistance from the banks, the central government has now sweetened the terms of what is effectively a restructuring of the loans.