Local government debt is huge risk for China's economy
Local government debt continues to be a major risk for China's economy, despite attempts to contain it. Yi Xianrong of Qingdao University warned “local officials often play with the rules, collude with agencies and get their pet projects funded. They try their best to leverage the financial market and get financed, exposing investors and ultimately ordinary people to risks of default.” Local government financial vehicles (LGFV) have surged, with the outstanding amount of LGFV bonds totalling over CNY6tn ($767bn) in 2016, 20 times more than in 2008, with LGFV bonds only part of local government debt, which was estimated at CNY15.32tn at the end of 2016.

Xingyang’s Communist Party school was one of the buildings used as collateral for the 800 million yuan bond. Photo: Simon Song