Bloomberg (gated) with the report of China's ballooning, and imperilled, local government debt.
- China’s deepening property crisis is piling pressure on a $1.6 trillion corner of the country’s onshore bond market, as cities and local administrations step in as white knights to bail out troubled developers in a state-backed bid to aid the sector.
- After replacing builders as the biggest buyers of land earlier this year, the nation’s so-called local government financing vehicles, or LGFVs, have now become the main purchasers of half-finished projects of defaulters including China Evergrande Group. Their increasing involvement in real estate has analysts raising red flags.
- Moody’s Investors Service says that could weigh on the credit profile of these state funding agencies. While no LGFV has defaulted in the current cycle, Bloomberg Economics isn’t ruling out one ahead, as its data show average credit spreads on some of the worst-performing LGFV local bonds have almost doubled to nearly 10 percentage points since mid-January.
More at that link above.
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While on China, yesterday we had inflation data showing the official numbers have CPI well within target range. This would allow further PBOC easing if the Bank should wish. Which might prompt further capital outflows, a factor the CHinese authorities will be keenly considering.
