Across China, a growing financial burden on local governments is leading many regions to gamble with potentially dangerous debt products aimed at retail investors, reigniting concerns about systemic financial risk.
Local governments in China sold a record amount of bonds in June as it turned to its old playbook of boosting economic growth through public infrastructure investment amid fears of an economic slowdown.
China and over 20 other emerging markets are undergoing their worst wave of capital exodus in around seven years, with a net total of US$4 billion withdrawn from equities and bonds combined in June, according to the Institute of International Finance.
China’s audit office says local governments have misused proceeds from special purpose bonds and falsified information to receive coronavirus subsidies, as regional finances are squeezed by growing economic pressure.