China's efforts to reduce risks from local government debt are likely to weigh on economic growth again this year, as a nationwide debt relief campaign is expected to curb spending on capital projects.
The concern stems from a snag in Beijing's plan to reduce the risk of disorderly defaults. China is helping local governments refinance the off-balance sheet – or so-called “hidden” – debt accumulated by government financing vehicles. This appears to reduce the risk of a financial crisis this year, but these local authorities are also under unprecedented pressure to stop issuing additional debt.
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