LGFVs: to default, or not default? Ask Beijing

A missed payment on a Rmb500 million local government debt spooks investors. Now they're waiting anxiously to see what happens next.

China’s recent shift towards short-term monetary loosening has failed to arrest a default on a local government debt vehicle in the western province of Xinjiang, renewing concerns over Beijing’s determination to contain systemic risk.

The timing of the default, however, is more surprising. Authorities in Beijing have recently loosened their grip on monetary policy in an attempt to shore up the balance sheets of struggling companies, as a trade war with the US threatens the export-dependent economy.

The National Development and Reform Commission, the country’s top economic planner, said on Wednesday that Beijing was looking to boost investment in infrastructure projects to alleviate financing pressure on...

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