About off-balance-sheet debt


Local governments bear more public expenditure than their revenues, and they are restricted to borrow formally. Therefore, “local-government financing vehicles” are created. They are registered as companies, but creditors know – or, rather, assume – that the state stand behinds them.

As growth slows, the spectre of local-government debt looms once more. This is worrying for 3 reasons: trajectory, opacity and reliance.

Chinese government has been trying to limit LGFV borrowing since 2010. The giant debt swap is conducted, in which local governments exchanged trillions of yuan in LGFV bonds for official bonds charging lower interest. Last year LGFV bonds are permitted to default.

However, worried about slowing GDP growth, central government opened the door for provinces and cities to increase spending. As local officials are reluctant to open their wallets (once growth stabilizes, they are likely to face deleverage pressure again), central government could in effect fund LGFV bonds directly, without testing the market. For example, China Development Bank, offer long-term loans to LGFVs to replace their short-term debts.


  • It has seen better days
  • A fitting symbol for
  • Come into sharp focus
  • Miss much of what is happening
  • … higher than a year earlier, a big comedown from the previous double-digit norm

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