China’s credit investors are snapping up bonds issued in its most indebted provinces, encouraged by signs that Beijing will help local governments clean up a mountain of borrowings, reports the Financial Times. Local government financing vehicles (LGFVs)—investment companies that raise debt on behalf of local governments and build infrastructure projects for them—have been rushing to meet the renewed demand. Their monthly bond sales jumped in August to the second highest on record at RMB 640 billion ($88 billion), according to calculations by the Financial Times based on Wind data.
Enormous debts accumulated by China’s provinces and cities have become a pressing problem for policymakers, with Beijing recently dispatching experts to scrutinise the books of localities and deal with bloated balance sheets. Debt issued by LGFVs is estimated by the IMF to total RMB 66 trillion.
The surge in bond sales indicates onshore investors believe China will find ways to refinance and cut local government debt, as policymakers in Beijing work on a new model for LGFVs to drive economic growth.