So far, they have been no public reports of an LGFV default, but some have had loans extended."The LGFVs have become the black hole of the Chinese financial system. They have been used to fill the gap between local government revenue and expenditure," said Andrew Collier managing director at Orient Capital Research.
Concerns about their worsening credit profile come as the government is trying to lift the economy from the grip of a property debt crisis in the last couple of years, which saw a number of developers default on their debt and land sale revenues plummet, forcing Beijing to roll out a slew of supportive measures.
The sources, who declined to give details, could not be identified due to the sensitivity of the matter. Faced with tighter credit criteria at home, LGFVs turned to offshore markets and raised a record $39.5 billion via dollar bonds last year, according to rating agency S&P. Offshore branches of Chinese financial institutions have been major buyers of the bonds, industry sources said.
The worsening outlook for LGFVs has also made some shadow banks -- lenders for sectors that are unable to tap bank funding directly -- worried about their exposure to such units and averse to fresh lending.
Building even more ghost cities, roads and railways to nowhere
Western democracies have learned a lesson from China’s support of Russia, Taiwan aggression, and supply chain challenges, particularly in tech: it is both safer and cheaper to manufacture domestically. With better and better robotics, made in America makes sense.