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China Warns on Debt, But Bond Buyers Shrug

  • Investors have yet to see eye-opening defaults, analyst says
  • Risk is continued capital misallocation: BNP Asset Management
General Views of Pudong as PBOC Cash Withdrawals Seen Denting Sentiment
Photographer: Qilai Shen/Bloomberg
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What happens when you say you’ve taken away a safety net, but nobody believes you?

That’s essentially what’s going on in one corner of China’s bond market, with the implication being that someone needs to get hurt before the message hits home. The issue relates to local government financing vehicles, or LGFVs, which boomed a decade ago when China’s Communist leadership let provincial and municipal authorities ramp up borrowing to fund all sorts of infrastructure and property development.