China is looking into hidden, unpaid debt across local governments, sources told Bloomberg. Officials have launched nationwide inspections in a sign that Beijing is trying to minimize financial risk. China has more than 3,000 administrative units, with many relying on “local government financing vehicles.” Loading Something is loading.
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China is now looking to unearth hidden debts across local governments in an attempt to minimize financial risk, according to a Wednesday Bloomberg report.
National leaders will press local officials to share how much money they owe, people familiar with the matter told Bloomberg, with the aim being to create a more comprehensive picture of liabilities at every level of government.
The surveying began in May, and the idea is that a more accurate analysis of any outstanding debt can pave the way for clearer policy moving forward.
China has more than 3,000 individual administrative units, with many of them relying on companies known as “local government financing vehicles” to borrow money to fund projects that can’t fit into official budgets.
These companies aren’t official government bodies, which means their debts remain off the books and allow local finances to look better than they are in reality.
According to Bloomberg, Beijing has denied that governments are on the hook for these debts, but markets finance LGFVs as if local authorities wouldn’t let any of them default.
Still, these financing vehicles pose a risk, as they struggle to turn a profit or make enough money to repay loans. Earlier this year, a Bloomberg survey found LGFVs were the most frequently cited risk among money managers and economists.
Officially, China’s Ministry of Finance reports local governments had 37 trillion yuan, or about $5.1 trillion, in debt outstanding, as of April, though there’s no official tally for the hidden debt.
The vast audit comes as China’s economy stalls, falling short of the highly anticipated post-pandemic rebound many strategists had expected.
Last week, the People’s Bank of China made a surprise rate cut, and Beijing is reportedly weighing a stimulus package ahead of the Communist Party’s Politburo meeting in July.