Courtesy of Also Sprach Analyst.
Debts of local government financing vehicles (LGFVs) in China have been a concern here. As the government pushed “growth stabilisation” to the top priority earlier this year, local governments have been announcing massive investment plans that most people now agree are fanciful.
The most cited reason for these plans being not realistic is that they will not get funding, as most local governments are financially quite stretched. Our rationale, on the other hand, is the that central government is not willing to see a “RMB4 trillion version 2.0” type of stimulus programme and as long as the central government has no intention allowing a repeat of the previous round of massive stimulus, banks will not be under pressure to lend, and local governments will not get funded from banks.
Indeed, banks loan growth is not particularly strong. But funding sources such as bond markets and trust loans are seeing strong growth this year, which have helped filling the gap left by reluctant banks and have probably funded part of the current round of “stimulus” (if that is the right word) in the form of infrastructure investment, while some of the bond sales and trust loans are probably for repaying older bank loans. Economic Information also confirms today that LGFVs have sold RMB579.28 billion of bonds year-to-date, which is much higher than RMB150 billion for the full year of 2011.