China’s hidden local government debt has expanded more than 50% the size of the economy as revenue is already under pressure due to a decline in land sales.
- The total debt of local government financing vehicles increased nearly 53 trillion yuan ($8.2 trillion) at the end of last year from 16 trillion yuan in 2013. That matches around 52% of GDP and is higher than the outstanding government debt level.
- The LGFVs are a channel for governments to lend money without appearing on their balance sheets, but it aligns with the government liability by financial markets.
- There were indicators earlier this year that the government was making internal investments in cutting this debt as the economy’s recovery focused on dealing with financial risks.
- Economists led by Maggie Wei stated that the issuance of more official local government bonds and increased flexibility on local government financing are needed to support China’s economic growth.
Land sales are a significant source of revenue for local governments, and sales dragged on as the crisis at property developer China Evergrande Group evolved.
CSI 300 Index down -1.02%, EUR USD down -0.29%.Source: Bloomberg
