China LGFVs: fears mount of bond defaults

Concern the country’s local government financing vehicles could default on debt are rising, but foreign investors look set to keep buying their bonds.

Some of China’s local government financing vehicles LGFVs are increasingly likely to default on their public debts, but foreign investors can breathe a sigh of reliefany debt collapses will most likely impact lower-tier bonds that are mostly held by local buyers. 

However, the likelihood of defaults of government-linked borrowers underlines the increased risk of investing into Chinese bonds, and the need for foreign investors to do their due diligence in the absence of international rating agencies. 

Fitch Ratings said in a report on September 24 that the LGFVs most likely to default consist mostly of lower-tier, or non-provincial LGFVs. The rating...

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