Larger local govt debt may add to China's credit risk

The Chinese government’s intention to sell $203 billion of local government debt marks a departure from deleveraging to stimulus. But it is likely to increase China's debt problems.
Local governments in China plan bond sales to stimulate infrastructure spending
Local governments in China plan bond sales to stimulate infrastructure spending

The Chinese government’s intended sale of Rmb1.39 trillion $203 billion of local government debt is a sign that it has moved away from deleveraging to stimulating the country's flagging economy. But the bond sale also risks exacerbating the country’s severe debt problem.  

“It’s not going to stimulate growth and it’ll worsen the debt problem,” said Cliff Tan, East Asian head of global markets research at MUFG, at a recent press conference. “China is going back to the old playbook. The old playbook is to stimulate, backed by financing. That is going to increase credit risks.”

On January 2, China’s Ministry of Finance announced...

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