Chinese LGFV bonds

Investors must tread carefully with LGFV bonds

Investors are rushing back to Chinese LGFV offshore bonds, but credit risk means that picking the wrong ones could be costly.
In China, local government financing vehicles (LGFVs) finance the construction of infrastructure projects.
In China, local government financing vehicles (LGFVs) finance the construction of infrastructure projects.

Amid the current wave of enthusiasm for offshore bonds from Chinese local government financing vehicles LGFVs, investors should exercise caution when choosing where to invest. The sector is a minefield of credit risk.

The issuance of LGFV US dollar bonds this year has already outstripped that of the last couple of years. So far, bond sales have surpassed $6 billion, which is more than the $4.8 billion for the whole of last year and the $2.2 billion for the year before, according to Bloomberg data.

The substantial increase of LGFV offshore issuance in 2018 and 2019 means that avoiding the sector altogether can result...

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