China's Shadow Banking Curbs Cut Local Borrowers' Lifeline
- Premium on local borrower debt rises to near a three-year high
- ‘Higher risk of defaults’ in regions: China Merchants Bank
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China’s crackdown on shadow banking is raising concern among bond investors about local borrowers’ ability to make repayments as a record 1.8 trillion yuan ($285 billion) of notes come due this year.
Regulators have stepped up efforts to patch loopholes in off-balance sheet financing in the last couple weeks, moves that will effectively block most fundraising channels for local borrowers. Concern that some local government financing vehicles may not be able to repay debt has helped push up the yield premiums on AAA rated LGFV notes to near the highest in three years.