China Keeps an Ace Up Its Sleeve While Upping Ante on Local Debt

In addressing the dilemma over some $4 trillion of debt racked up by spendthrift local authorities, China’s leaders have so far kept one ace up the sleeve -- an option that helps limit the potential for a financial crisis.

At a stroke, Premier Li Keqiang’s government could bail out provinces and cities directly by issuing national bonds, rather than the current policy of encouraging banks to keep credit flowing to them.