China debt crackdown pushes LGFVs into costly shadow loans, reviving hidden-risk worries

China’s crackdown on local-government borrowing is pushing even wealthy provinces back into the shadow-banking market, where state-run entities are taking on high-cost loans to plug funding gaps.

Bloomberg carried the info:

• Since September, local-government investment arms and financing platforms in regions have borrowed billions of dollars from trust companies and leasing firms at 8%+ rates, more than triple bond-market funding costs.
• The shift reflects Beijing’s tighter controls on LGFV borrowing, which have restricted access to regular bank loans and bond issuance, contributing to a slump in infrastructure investment.
• Analysts say firms are resorting to costly refinancing as interest payments rise and project expenses come due in Q4, with bond issuance by financing vehicles at its lowest since 2020.

Shadow-banking activity is difficult to track, but Fitch estimates LGFV debt above ¥60 trillion, with roughly 10% financed through non-standard channels, the opaque segment now seeing renewed growth. The resurgence complicates Beijing’s campaign to resolve hidden debt, despite regulators’ claims of progress: the number of financing platforms and their outstanding operational debt have fallen sharply since early 2023. Officials continue to pledge “iron discipline” to prevent new off-balance-sheet borrowing.

This article was written by Eamonn Sheridan at investinglive.com.