China debt: local governments target amateur investors in new round of risky credit expansion
- Financial stress is pushing many local governments in China to gamble with potentially dangerous debt products aimed at retail investors
- Direct social media marketing to retail investors has emerged as one approach to raising funds for infrastructure projects
For William Liu, a Zhejiang-based manufacturing entrepreneur, seeing a slew of risky new investment products crop up online evokes a sense of déjà vu.
In 2016, he lost all of his money after investing with two funds that bought debt being used to fund local government projects, but which ultimately never saw the light of day.
“I have lost all confidence to invest in the domestic market, whether via private wealth products or funds associated with local debt,” said Liu, who took part in a lawsuit against the funds for selling fraudulent financial assets, but has yet to recoup his losses.
Across China, a growing financial burden on local governments is pushing many to gamble with dangerous debt products aimed at retail investors, which are reigniting concerns about financial risk that Beijing has been at pains to keep under control.
Local government revenue from land sales has tumbled this year due to a slump in the property market, while many regions have had to cut taxes to rescue their economies from Covid-19 outbreaks in recent months.
