Unwinding China’s US$8 trillion local debt crisis a ‘monumental challenge’, but can Beijing find the cash?
- US rating agency Standard & Poor’s estimated that local government financing vehicles (LGFVs) collectively owe about 60 trillion (US$8.2 trillion) in debt
- People’s Bank of China said last month that there will be ‘coordinated’ financial support to resolve local government debt risks
Local governments need immediate liquidity to prevent public defaults, according to policy advisers and analysts, although there are doubts about bolder measures from Beijing to resolve the ongoing debt crisis.
Over the past few decades, China has largely relied on rapid economic growth to support its debt level.
But the deteriorating financial health of some indebted local governments has become a key concern for policymakers and investors amid China’s slower-than-expected recovery.
The People’s Bank of China said last month that there will be “coordinated” financial support to resolve local government debt risks, although there is rising fear that the central government’s response might be too slow.
I don’t think the central government had properly considered the consequence
“I don’t think the central government had properly considered the consequence [of curbing local governments borrowing],” Yao Yang, dean of Peking University’s National School of Development, said at a seminar last week.
