China’s Cleanup Efforts for LGFV Debt to Drag on Economy in 2024
- Net bond market financing seen reaching record low this year
- Fewer funds for infrastructure expected to hurt GDP growth
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China’s efforts to lower risks from local government debt are likely to weigh on economic growth again this year as a national deleveraging campaign is expected to curb spending on investment projects.
The concern stems from a catch in the plan Beijing has put forth to lower the risk of disorderly defaults. China is helping local governments to refinance the off-balance sheet — or so-called “hidden” — debt accrued by state-owned financing vehicles. That seems to be mitigating the chance of a financial crisis this year, but those local authorities are also under unprecedented pressure to stop issuing additional debt.