Read on Twitter
Good review of China’s local government debt problem. Economists Yin Jianfeng & Wang Jiangjiang suggest it could turn into a “European-style” debt crisis as periphery gets into deeper trouble (though Beijing isn’t Berlin, so there’s limits to that analogy) https://mp.weixin.qq.com/s/29sH2MqHgOmNf8AdeoWOlg
A few items to note. Local governments (provinces) issue bonds (backed by MoF) and the LGFEs issue their own bonds. The former are now YE 2020 RMB 25.4tn, the latter RMB 10.6tn. So together thats USD5tn, 20pc up this year. This doesn’t include other liabilities like bank loans.
They note that the market is sniffing problems in the periphery. Here are LGFE bond spreads (how much higher the yield is over “safe” MoF bonds). Shanghai (orange) ok, Guizhou yellow hmmm..., Hunan light blue errr..., highly-indebted Yunnan forget about it!!!
They est. that over 2021-23 at least 8 provinces will need to spend >50pc of their fiscal revenues repaying & servicing debt. And that number is an underestimate given all the hidden debt not in their numbers. That will squeeze other spending & mean more debt issuance to cover
All provinces, apart from Shanghai (far left) depend on transfers from Beijing for at least some of their spending. Far right Gansu, Qinghai, Tibet need 80pc from Beijing. Thats the way the sys was set up. But now the central government runs budget deficits each year - so hardest
They make some sensible but not new suggestions: more oversight on spending in poorer areas, limit debt issuance by them too, more spending by central government on priorities like health & education, & more debt swaps (hidden debt for official debt)...
... something MoF vowed never to do again. But who were they trying to kid?!? There are lots of good reasons why Beijing hasn’t solved this problem. If you’d like to read more, I think my 2019 blogpost on Zhenjiang stands up nicely: http://credibletarget.net/notes/Zhenjiang
