China’s regional economies are under growing pressure to meet debt repayments after a years-long spending spree, as trillions of RMB worth of credit is set to mature next year, according to analysts, reported the South China Morning Post.
A series of recent defaults by state firms that count local governments as majority shareholders have raised doubts over the ability of some authorities to pay back debt, including off-balance sheet borrowing through so-called local government financing vehicles (LGFVs). The risk of default has stoked fears about damage to the wider economy.
Local government debt in the world’s second biggest economy ballooned this year after Beijing raised its fiscal budget deficit level and local government debt quota for infrastructure investment funding to steady the coronavirus-hit economy. LGFVs are often the main funding platforms for regional infrastructure projects.
In the first half of the year, LGFV debt increased by RMB 3.7 trillion ($565.9 billion), outpacing the 3.3 trillion rise for all of 2019, according to estimates from JP Morgan.