Local governments make extensive use of local government finance vehicles (LGFVs) to conceal debt and present a healthy balance sheet. The hidden debt presents a major risk for central government as the economy threatens a debt-deflation spiral.
From Caixin Global, March 14 2024:
China’s central government has rolled out a new round of measures since the second half of last year to help local governments swap or restructure their off-the-books borrowing in a bid to control debt risk.
However, the sheer scale of the country’s local government hidden debt — up to more than 70 trillion yuan ($9.8 trillion) according to some estimates, more than twice Germany’s GDP — means that the measures at best are far inadequate and will provide only temporary relief to what experts say is a looming liquidity crisis for regional authorities….