A significant evolution is underway in how China manages its rising levels of local government debt. On May 14, the Chinese government announced that by September, it would complete the first phase of a new plan that allows local governments to swap outstanding loans for low-yield, slow-maturing local bonds. Under the plan, localities would have a steady and stable repayment path for the more than $3 trillion in local government debt accumulated during the past six years of rapid, post-financial crisis spending. It will also have the added benefit, Beijing hopes, of lowering local government debt-servicing costs, thus freeing up tens of billions of yuan in liquidity in the short run. For now, local governments will be able to exchange only a small portion of outstanding loans (about $160 billion) for local bonds, but if successful, the program will likely expand substantially in the years to come.