China’s crippling debt levels seen worsening as government measures focus on ‘buying time’
- Weak fundamentals of local government financing vehicles are not being properly addressed, according to S&P Global Ratings
China’s rescue plan to resolve its local government debt crisis has thus far provided only temporary fixes, with default risks remaining significant and the debt pile set to grow in the coming two years, according to a new S&P Global Ratings report.
A series of measures implemented a year ago after a meeting of the Politburo – the centre of power within the Communist Party – included a debt-swap programme and loan restructuring aimed at defusing what threatens to be a financial time bomb that could damage China’s banking system.
“So far, we see temporary fixes for China’s heavily indebted local government financing vehicles (LGFVs),” S&P Global Ratings credit analyst Laura Li said in the report, released on Thursday.
“The measures are more focused on ‘buying time’ than addressing the weak fundamentals of local government corporate arms.”
LGFVs, which have proliferated since the global financial crisis in 2008, are hybrid entities that are both public and corporate and were created to skirt restrictions on local government borrowing.
