Though not as visible as the ongoing property disaster this is pretty big.
From Asia Financial. August 7:
Multiple Moves Needed to Defuse China’s Local Debt CrisesAnalysts say the days of pretending local governments will resolve their debt crises appear over, with Politburo leaders expected to provide rare central budget funds to slash debts totalling at least $12.8 trillion.
China is expected to undertake multiple measures – including rare central budget expenditure – to resolve its local government debt crisis, government policymakers say.
Special bond issues, debt swaps and loan rollovers will all be used to defuse a debt crisis that has grown too large for Beijing to ignore any longer.
Local governments are fundamental to China’s economy, with leaders in Beijing asking provincial and city officials to meet ambitious growth targets.
But after years of over-investment in infrastructure, plummeting returns from land sales and soaring Covid costs, economists say debt-laden municipalities now represent a major risk to China’s economy.
Chinese leaders pledged last month to help ease their debts, without detailing how, because of worries about a potential chain of municipal debt defaults destabilising the financial sector.
‘A complex problem’
Economists took that message as being more constructive than in April, when Communist Party leaders demanded “strict control” of local debts. The implication, they say, is that Beijing has realised it needs to urgently throw cash at the problem.That could represent a major breakthrough in finding a way out of China’s municipal debt crisis, with Beijing having for years demanded that local administrations sort themselves out.
“The local debt problem is complex, so you cannot simply say you don’t want to take responsibility,” said Guo Tianyong, professor at the Central University of Finance and Economics in Beijing, explaining the politburo’s directions.
The extent of any central government involvement, and any conditions attached to it, are still subject to debate, two policy advisers said. Whether the package of measures will be a short-term or multi-year plan also remains unknown.
These details will be key for investors to gauge how decisive and long-lasting Beijing’s solution will be.
“The size of any restructuring and the scale of the problem Beijing acknowledges is important to the success of this effort,” Logan Wright, a partner at Rhodium Group, said.
Local government debt of at least $12.8 trillionLocal government debt reached 92 trillion yuan ($12.8 trillion), or 76% of economic output in 2022, up from 62.2% in 2019....
