China’s zero-Covid policies and its post-pandemic recovery efforts have strained finances at local levels, pushing debt to an all-time high this year – twice what it was in 2017 – with little help from Beijing.
Concerns about city and county government default risks are mounting in China as Beijing’s willingness to offer enough support to avert a meltdown is questioned.
Corporate bond financing in China’s Gansu province declined to 22.3 billion yuan (US$3.2 billion) in 2022 following the ‘technical default’ of a local government financing vehicle in 2021, according to a local financial official.
Guizhou in southwest China has struggled to raise funds in recent years in capital markets as a result of its deteriorating credit profile, and this week the State Council outlined plans to support its growth.
Shanghai and Guangdong will focus on better self-regulation to curb hidden debt risks, while also looking to convert some of the debt into regonisable debt amid rising concerns in China.