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China’s Local Government Vehicles Guarantee $1 Trillion in Debt

  • Debt guarantees by LGFVs bigger than their outstanding bonds
  • Contingent liabilities raise financial risk for LGFVs: Moody’s
Views of Shanghai as IMF Says China's Complex Fiscal System Needs 'Crucial' Overhaul
Photographer: Qilai Shen/Bloomberg
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China’s financing units for local governments, already grappling with bloated debts, now face an even bigger predicament -- a build-up of credit guarantees that leave them vulnerable to surging defaults.

Around 2,000 of these platforms, known as local government financing vehicles, have offered a total of 7 trillion yuan ($1 trillion) of guarantees to loans, bonds and shadow financing for domestic companies, said Lv Pin, an analyst at CITIC Securities Co. That surpasses the tally of LGFVs’ own outstanding local bonds, Bloomberg-compiled data show. These guarantees help private companies get financing as banks prefer to lend to state-owned ones.