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Bruce Cockburn: 50 years of music, spirituality and social justice | SaltWire - Chinese investors are rushing to buy bonds of local government financing vehicles , including from the riskiest issuers, as Beijing's fresh attempts to reduce local debt risks encourages them to bet on an implicit government guarantee.
Such bond issuance, expected to hit 1 trillion yuan by the end of this year, is widely believed to be part of Beijing's measures to defuse debt risks of LGFVs - companies set up by local governments to fund infrastructure investment, a key growth driver for the world's second-largest economy. Haisheng, which manages 4.5 billion yuan of assets, has seen heavy money inflows in recent weeks as investors seek LGFV bonds, compressing credit spreads sharply.
LGFV bonds - estimated at around 13.5 trillion yuan - were battered earlier this year amid growing signs of fiscal stress, but have been back in favour since July, when China's Politburo pledged measures to address local debt problems. Thanks to the perceived government guarantee, LGFV debt, which includes loans, bonds, and shadow bank borrowing, has ballooned to roughly 60 trillion yuan, posing a threat to China's financial stability.
Haisheng's Zhang said that, unlike private property developers, LGFVs are state-owned and the central government will make sure their bonds won't default.
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