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.
