China LGFV Sector Outlook Deteriorates
https://www.fitchratings.com/resear...-local-government-fiscal-pressures-14-12-2022
While optimism toward China has been growing amid the economic reopening, the recent loan restructuring of a local government financing vehicle shined a light on this $7 trillion in “hidden” debt. While this group of borrowers has never defaulted, markets are starting to get worried, shunning some weaker borrowers.
The restructuring caused a splash among market participants. Local government financing vehicles, or LGFVs, are mostly tasked with building infrastructure projects. They allow local authorities to raise money without having the debt appear on the government’s balance sheet. This “hidden” debts and contingent liabilities have risen to 47 trillion yuan ($7 trillion and 39% of GDP) in September, up from 20 trillion yuan at the end of 2016, according to Adam Wolfe, an economist at Absolute Strategy Research.
LGFV bonds — known as 地方政府融资平台 – are enormous, accounting for about a third of total issuance. The stress there could easily spread to the rest of the credit market. Moreover, their inability to borrow may reduce local governments’ spending. Losses at LGFVs could also increase non-performing loans at banks that lend to them. https://en.wikipedia.org/wiki/Local_government_financing_vehicle
https://www.fitchratings.com/resear...-local-government-fiscal-pressures-14-12-2022
While optimism toward China has been growing amid the economic reopening, the recent loan restructuring of a local government financing vehicle shined a light on this $7 trillion in “hidden” debt. While this group of borrowers has never defaulted, markets are starting to get worried, shunning some weaker borrowers.
The restructuring caused a splash among market participants. Local government financing vehicles, or LGFVs, are mostly tasked with building infrastructure projects. They allow local authorities to raise money without having the debt appear on the government’s balance sheet. This “hidden” debts and contingent liabilities have risen to 47 trillion yuan ($7 trillion and 39% of GDP) in September, up from 20 trillion yuan at the end of 2016, according to Adam Wolfe, an economist at Absolute Strategy Research.
LGFV bonds — known as 地方政府融资平台 – are enormous, accounting for about a third of total issuance. The stress there could easily spread to the rest of the credit market. Moreover, their inability to borrow may reduce local governments’ spending. Losses at LGFVs could also increase non-performing loans at banks that lend to them. https://en.wikipedia.org/wiki/Local_government_financing_vehicle
