China debt concerns mounting as Beijing shifts attention to hidden local government financing
- Beijing has tightened its supervision over local government financing vehicles (LGFVs) to control the flow of funding
- This has increased concerns whether local governments can find enough funds to repay their debts, which have been rising over the years
Concerns are mounting over how local governments in China will pay back so-called hidden debts raised through self-issued bonds, especially as Beijing is increasing controls to prevent a meltdown in its largely state-dominated financial system.
After years of poor infrastructure returns, Beijing has flagged concerns over local government financing vehicles (LGFVs), which are typically entities set up by authorities to fund infrastructure projects.
“Chinese LGFVs’ commercial activities could increase credit risk if they diversify into high-risk ventures such as mining or property development,” said Ivan Chung, associate managing director at Moody’s.
Beijing has tightened its supervision over LGFVs since the start of the year to control the flow of funding, increasing concerns whether local governments can provide sufficient funds to repay their debts, which have been rising over the years.
