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China local governments sound alarm on debt obligations

Published: September 6, 2019
Author: TEXTILE VALUE CHAIN

Provincial auditors across China are sounding the alarm on a wave of fast-approaching local government debt maturities that analysts think could amount to at least RMB 3.8 trillion ($560 billion) within the next two and half years, presenting a risk to China’s financial system, said the Financial Times. .

The auditing office of Shaanxi province in northwestern China is the latest authority to release a worrying report on the level of debt repayments facing the local government. The office, one of several to release audit reports in recent weeks, warned this week that the province bears heavy repayment pressure over the next five years and that 34% of its so-called “hidden debt” must be paid back before the end of the year,
without specifying the size of that debt.

“The burning question is whether debt-strapped governments will be able to quickly bail out local government financing vehicles (LGFVs) that become distressed,” S&P Global Ratings said in a report. “The stakes are high. If defaults or bankruptcies among high-profile LGFVs become epidemic, it would erode market confidence, tarnish government reputations, and destabilize the financial system,” the agency
added.

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