Explainer | China debt: is the bubble about to burst, and what is driving the crisis among local governments?
- The outlook for Chinese local government debt in 2023 is gloomy, triggering concerns over rising default risks
- Beijing has stepped up supervision of off-balance-sheet borrowing and is promoting fiscal and loan restructuring
Credit conditions for China’s heavily indebted local governments are likely to worsen this year, according to analysts, as weak land sales revenue, high fiscal deficits and growth in liabilities persist, triggering concerns about rising default risks.
The local government in Beijing said last week it had achieved “zero hidden debt” under a pilot programme devised by the central government to clean up off-balance sheet borrowing.
But the city government did not disclose the size of its so-called hidden debt or details of the programme.
In addition to a debt quota approved by the Ministry of Finance, local governments have often borrowed off-budget using local government financing vehicles (LGFVs). Many of these loans have little or no transparency.
What regions in China are the most indebted?
There is no official figure on the size of China’s hidden debt, but some areas are thought to be worse off than others.