Now on China's Default Watch: $617 Billion in Regional Debt
- No local financing-vehicle defaults yet amid 12 delinquencies
- Potential for state support `weakened materially:' StanChart
BINZHOU, CHINA - JANUARY 01: (CHINA OUT) Golden piggy banks pose the '2016' at a furniture market for lottery to celebrate new year on January 1, 2016 in Binzhou, Shandong Province of China. Citizens who purchase commodities from the furniture market will get a lottery chance and lucky men will gain a golden piggy bank.
Photographer: ChinaFotoPress/ChinaFotoPress via Getty ImagesChina’s default watch is starting to include the 4 trillion yuan ($617 billion) debt of financing arms of regional authorities, so far spared amid at least a dozen bond delinquencies over the past two years.
While the resilience of local-government financing vehicle bonds has helped it trade at a lower yield than similarly rated corporate securities, that gap is starting to be eroded. The discount for five-year AA+ LGFV notes narrowed 6 basis points from a record high of 32 basis points in January. Total borrowing by 29 of China’s provinces surged to 16.2 trillion yuan at the end of last year, up 53 percent from 2013, according to a March 22 Bloomberg Intelligence report.