Years of aggressive credit-fueled expansion may have left China with a “debt iceberg with titanic credit risks,” according to leading ratings agency S&P Global.
The country’s local governments, who borrowed heavily in the years following the financial crisis of 2008, could face a debt burden as high as Rmb 40 trillion ($5.8 trillion), said S&P.
The debt tied up in local government financing vehicles stood at 60% of GDP at the end of 2017, spiking the possibility of widespread defaults at companies linked to regional governments.
This “alarming” ratio could pose greater threats to the financial system if a critical mass of LGFVs default, said S&P analyst Richard Langberg.
“If they start to let the bigger ones go then we are getting into uncharted territory,” Langberg told the Financial Times.