China debt: Guizhou among indebted western areas facing ‘greatest’ repayment pressure amid default fears

In the latest in a series of problems, Bozhou Investment is reported to have defaulted on an infrastructure trust loan worth 255 million yuan (US$40 million) last month

Last year, the central government paid local authorities a reported 8.39 trillion yuan (US$1.2 trillion), an increase of 12.8 per cent, with many facing significant debts

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Accurate figures on the overall debt levels of China’s provinces are not available as the numbers provided by local authorities often do not account for funds raised via the local government financing vehicle (LGFV) model which often creates off-budget or so-called hidden debt. Photo: Weibo

Published: 8:15pm, 4 Feb 2021Updated: 9:44pm, 4 Feb 2021

China’s underdeveloped western areas, particularly the heavily indebted province of Guizhou, are set to face increasing pressure over the next five years due to rising debt levels that could potentially trigger risks in the state-dominated banking system, according to a new report.

Caixin reported last week that a state-owned investment company, Zunyi Bozhou District State-Owned Assets Investment and Management Group which is better known as Bozhou Investment, defaulted on an infrastructure trust loan worth 255 million yuan (US$40 million) that was due on January 10, citing unidentified sources.

It added that Chinese investment management company Citic Trust is in talks with the district government of the city of Bozhou and Bozhou Investment itself to discuss repayment of the loan.

It is the latest in a series of debt problems for Guizhou, with several of its cities and counties defaulting on debt repayments over the past few years.

The weaker the economy is, the greater the debt repayment pressure will be. In the next five years, the debt repayment pressure will be the highest in the western underdeveloped areas

National Institution for Finance & Development

In late December, a Shanghai court ruled that the city of Zunyi in Guizhou must repay Zhongtai Trust a total of 267 million yuan on a three-year loan that it raised in 2016 via a local government financial vehicle (LGFV).

“The weaker the economy is, the greater the debt repayment pressure will be. In the next five years, the debt repayment pressure will be the highest in the western underdeveloped areas, followed by the central and moderately developed areas, and the lowest in the eastern developed areas, and the gap between the regions will be larger and larger,” said the report this week published by the National Institution for Finance & Development (NIFD), a government-linked think tank.

“Once there is a default on local government debt, it will have a strong shock on the overall credit of local governments, and further increase the risk in the banking system, especially the local commercial banks.”