China’s Local Government Debts Could Go Under

China’s plan to run its biggest fiscal deficit since the global financial crisis may help develop its bond market, but the extra competition for funding could sink some of the major providers of local government financing.

Local government financing vehicles (LGFVs), which were invented to skirt restrictions on local government fundraising, are already under pressure from Beijing’s drive to reduce local debt and migrate provincial financing to a more transparent municipal bond model.

With over $3 trillion in outstanding debt that funded essential infrastructure, along with some vanity projects and speculative adventures, LGFVs are finding it hard to service their existing debts, let alone raise new money when loans fall due.

Some fear they could go under.

“There is no way we can survive, and the pressure on the company is huge,” said an executive at an LGFV in Yanghou city in Jiangsu province, who spoke on condition of anonymity.

His company has several billion yuan in debt raised to build roads and lay pipes.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza