Beijing’s crackdown on borrowing by local governments is forcing state-run entities to take loans from non-bank lenders, marking a return of China’s shadow banking market, which is more loosely regulated than traditional lenders and usually involves much higher interest rates, unnamed sources have told Bloomberg.
This situation suggests that Beijing is expecting the provinces to ask for less money, to find their own ways to cut expenditure. However, the result is that they are instead seeking out alternative sources that are high risk. There is seemingly a gap between expectations from Beijing and actual funding available to fulfill them.
Transparency comes up again here. The result of the provinces borrowing money from such places means debt gets pushed into places that are much harder to measure, and contributes even more to a growing opaqueness of what is happening with the Chinese economy overall.