Local government bonds make comeback as cumulative stimulus mounts

Beijing is turning once again to off-balance-sheet financing through outfits including local government financing vehicles, monthly bond issuance of which quadrupled between February and July, Reuters reported, citing figures from Moody’s. Cumulative stimulus is starting to rival the RMB4 trillion (US$625.6 billion) spending package unveiled during the global financial chaos of late 2008, fueling concerns that China’s economic miracle could end the same way as Japan’s: In high debts and deflation. “China appears to be more or less slowly entering a debt-deflation trap,” said Liu Li-Gang, chief economist for greater China at ANZ Bank, adding that Beijing needed to sell state assets more aggressively to escape a debt spiral.