Andy Mukherjee, Columnist

The China Default Everyone's Waiting For

Warning signs are appearing in onshore LGFV debt.

January 30, 2018 at 9:00 PM UTC

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

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This might be the year China gets its first four-letter default. Or so says S&P Global Ratings, discussing the possibility that an LGFV, or local government financing vehicle, could finally go belly-up.

Why should global investors care? More than 95 percent of the $1 trillion asset class is yuan-denominated and trades onshore. The offshore portion is small, and showing little sign of distress. The coupon on a $500 million, three-year dollar bond recently issued by Central Plaza Development Ltd. was 3.875 percent. This LGFV, perceived to be backed by the Municipality of Beijing, paid the same coupon last January for a $400 million offer of similar maturity. If anything, the spread of these bonds over U.S. Treasuries has narrowed.