China’s ‘hidden debt’ seen shrinking, but scaling that mountain remains a daunting challenge
- As Beijing continues to crack down on local-level debt, economist Luo Zhiheng has run the numbers to estimate how much progress has been made
“The expansion rate of interest-bearing debt of local government financing vehicles (LGFVs) has slowed down significantly, and the momentum of disorderly expansion of hidden debts has been curbed,” Luo Zhiheng, chief economist at Guangzhou-based Yuekai Securities, said in a research note on Thursday.
Luo, who was among a select group of economists in attendance at Premier Li Qiang’s round-table discussion about China’s economic outlook on July 6, came up with the estimate after an examination of interest-bearing debts and their related income from 3,300 LGFVs in China as of the end of 2023.
LGFVs are hybrid entities that are both public and corporate, created to skirt restrictions on local government borrowing. And they have proliferated since the global financial crisis in 2008 as a way of funding China’s infrastructure-building spree, with few generating returns. The debt raised is kept off the balance sheets of local authorities, yet carries an implicit government guarantee of repayment.
There are no official figures on China’s hidden-debt pile, but various estimates in recent years have suggested it could be somewhere between 30 trillion and 50 trillion yuan. And much of the debt stems from informal channels of borrowing that involve LGFVs. In comparison, China’s gross domestic product (GDP) for all of 2023 was about 126 trillion yuan.
