China to cap 2015 local government debt at $2.5 trillion

China's parliament approved on Saturday a cabinet plan to cap total outstanding local government debt at 16 trillion yuan ($2.5 trillion) this year, the official Xinhua news agency reported.

China, whose cooling economy has spooked investors worldwide, has long sought to deal with a mountain of local government debt - a legacy of unbridled spending during the global financial crisis. It was estimated by the audit office at 17.9 trillion yuan ($2.9 trillion) at the end of June

2013.

The debt ratio of local governments will be set at 86 percent, Xinhua said.

Outstanding local government debt stood at 15.4 trillion yuan as of the end of 2014, the agency said.

Local governments will be allowed to increase their outstanding debt by 600 billion yuan during the rest of this year.

The Ministry of Finance has allowed local governments to swap 1 trillion yuan of maturing, high-interest local debt for new municipal bonds to reduce interest costs, but demand for such bonds has been weak.

($1 = 6.3865 Chinese yuan renminbi)