China Faces Rising Local Debt Burdens, May Shift Infrastructure Funding Responsibilities to Central Government
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China's local governments have high debt burdens, with LGFVs owing an estimated $9.8 trillion according to the IMF. Over half this debt likely cannot be serviced at current rates.
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China's growth model based on debt-fueled investment and land sales is hard to sustain long-term.
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The central government will likely take a bigger role supporting infrastructure spending and economic growth going forward.
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The PBOC provided $49.2 billion in cheap loans to policy banks in December, which could support major infrastructure projects.
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Beijing may allow more local government bonds and provide aid to ease LGFV debt burdens, with the budget deficit potentially rising to 3.5-3.8% of GDP.