Post by account_disabled on Feb 27, 2024 22:59:02 GMT -6
The mountainous region of Guizhou, once known as one of China's most impoverished provinces, has become famous over the past decade for a different reason: it is home to some of the highest bridges in the world. From the 565-meter-high Duge Beipan River Bridge, which links Guizhou and neighboring Yunnan Province, to the 332-meter-high Pingtang Bridge, which spans the Caodu River Canyon, Guizhou's investment in infrastructure has helped lift the province out of poverty, earning him special praise from President Xi Jinping. But the high ground has come at a high cost. Guizhou's debt stood at 1.2 trillion yuan ($165.7 billion) at the end of . With a debt-to-gross domestic product ratio of 62 percent, it is one of the most indebted provinces in the country. Including off-balance sheet debt, the figure could be as high as 137 percent, according to one estimate. The enormous amount of debt accumulated by China's provinces, largely through opaque local government financial vehicles (investment companies that raise debt and build infrastructure on behalf of local governments) has become a huge problem for the second largest economy in the world.
The growing tension between local and central governments over debt comes as Beijing seeks new models of regional economic growth. “LGFVs are a legacy of the old supply-side expansion growth model that relied on Job Function Email Database heavy investment to create jobs and income,” said Chi Lo, senior investment strategist at BNP Paribas Asset Management in Hong Kong. “China's growth structure is changing now. When it changes, the old financing vehicles that supplied the old economy become obsolete.” Local governments, typically supported by funding from Beijing and profits from land sales, have long been encouraged to borrow to finance regional development. The first LGFV was created around 1998 to finance the construction of a highway. The practice gained momentum after a 4 trillion yuan stimulus package in 2009 that encouraged provinces to invest and boost growth. Banks viewed LGFVs (implicitly backed by local governments) as safe customers, and by the end of 2022, China's official local government debt amounted to 94 trillion yuan, according to an estimate by Goldman Sachs.
You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. Local government finances collapsed during the coronavirus pandemic, partly due to a rise in Covid-related public spending and a drop in land sales they relied on for income. With a huge amount of national debt payments due in 2023 and 2024, pressure has intensified on local governments, already struggling during an economic slowdown. "Local debt is increasing in a very uncontrollable way," said Victor Shih, a professor of Chinese political economy at the University of California, San Diego. "The dependence of local governments on the central government and on debt issuance is getting worse and worse very quickly." The near default of Zunyi, Guizhou's second-largest city, in December fueled concerns of a systemic financial crisis and hopes of central government bailouts. Zunyi restructured its 15.6 billion yuan loan with banks in January, surprising creditors.
The growing tension between local and central governments over debt comes as Beijing seeks new models of regional economic growth. “LGFVs are a legacy of the old supply-side expansion growth model that relied on Job Function Email Database heavy investment to create jobs and income,” said Chi Lo, senior investment strategist at BNP Paribas Asset Management in Hong Kong. “China's growth structure is changing now. When it changes, the old financing vehicles that supplied the old economy become obsolete.” Local governments, typically supported by funding from Beijing and profits from land sales, have long been encouraged to borrow to finance regional development. The first LGFV was created around 1998 to finance the construction of a highway. The practice gained momentum after a 4 trillion yuan stimulus package in 2009 that encouraged provinces to invest and boost growth. Banks viewed LGFVs (implicitly backed by local governments) as safe customers, and by the end of 2022, China's official local government debt amounted to 94 trillion yuan, according to an estimate by Goldman Sachs.
You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. Local government finances collapsed during the coronavirus pandemic, partly due to a rise in Covid-related public spending and a drop in land sales they relied on for income. With a huge amount of national debt payments due in 2023 and 2024, pressure has intensified on local governments, already struggling during an economic slowdown. "Local debt is increasing in a very uncontrollable way," said Victor Shih, a professor of Chinese political economy at the University of California, San Diego. "The dependence of local governments on the central government and on debt issuance is getting worse and worse very quickly." The near default of Zunyi, Guizhou's second-largest city, in December fueled concerns of a systemic financial crisis and hopes of central government bailouts. Zunyi restructured its 15.6 billion yuan loan with banks in January, surprising creditors.