https://www.washingtonpost.com/busi...b48e30-71f3-11ee-936d-7a16ee667359_story.html
October 23, 2023 at 6:26 p.m. EDT
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Forget real estate developers. The gray rhino of China’s economy, and perhaps the most lucrative trade of the year, is hidden municipal debt.
By some estimates, borrowings from local government financing vehicles, or off-balance-sheet entities deployed to fund infrastructure and stimulate regional economies, reached 57 trillion yuan ($7.8 trillion) last year, or 48% of China’s gross domestic product. LGFV debt is almost as big as central and local government borrowings combined, according to the International Monetary Fund.
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Perhaps aware of the ballooning maturity wall, in late July, Beijing tiptoed into a program that allows local governments to swap some LGFV debt for bonds carrying lower interest rates. Since then, LGFV bonds issued by the most distressed provinces have rallied. The credit spread of Tianjin, for instance, narrowed by 4 percentage points. Tianjin Rail Transit Urban Development Co. was able to issue commercial paper at 3% this month, versus a 5% coupon in January. In fact, the yield compression is so significant that these days AA-rated LGFVs can refinance more cheaply than the US government.
China’s Mystery 14,960 Municipal Debt Issuers
Analysis by Shuli Ren | BloombergOctober 23, 2023 at 6:26 p.m. EDT
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Forget real estate developers. The gray rhino of China’s economy, and perhaps the most lucrative trade of the year, is hidden municipal debt.
By some estimates, borrowings from local government financing vehicles, or off-balance-sheet entities deployed to fund infrastructure and stimulate regional economies, reached 57 trillion yuan ($7.8 trillion) last year, or 48% of China’s gross domestic product. LGFV debt is almost as big as central and local government borrowings combined, according to the International Monetary Fund.
Get a curated selection of 10 of our best stories in your inbox every weekend.
Perhaps aware of the ballooning maturity wall, in late July, Beijing tiptoed into a program that allows local governments to swap some LGFV debt for bonds carrying lower interest rates. Since then, LGFV bonds issued by the most distressed provinces have rallied. The credit spread of Tianjin, for instance, narrowed by 4 percentage points. Tianjin Rail Transit Urban Development Co. was able to issue commercial paper at 3% this month, versus a 5% coupon in January. In fact, the yield compression is so significant that these days AA-rated LGFVs can refinance more cheaply than the US government.