(Bloomberg) — China’s eastern province of Jiangsu has tightened its scrutiny on offshore borrowing by local-government financing vehicles, adding another layer to the reporting process as the nation steps up efforts to reduce credit risks. Have given.
Jiangsu, one of China’s most prosperous provinces and a major industrial hub, has required LGFVs to register their offshore bond sale plans with the local government, according to people familiar with the matter. The goal is to better manage foreign issuance and curb debt financing costs, said the people, who asked not to be identified because they were not authorized to discuss the issue publicly.
The LGFV must seek official approval from the National Development and Reform Commission, the state planner, the people said, adding that Jiangsu’s new process also requires registration with the local branch of the finance ministry. He said some planned issuances have been delayed given the need to comply with the latest changes.
The finance department of Jiangsu’s provincial government did not respond to an email from Bloomberg News seeking comment, while the finance ministry did not respond to a faxed question about whether the province’s approach was a pilot project.
China’s local governments are under extreme financial pressure as the economic downturn impacts revenues, with income from land sales to builders reduced due to the years-long real estate crisis. With the country’s LGFVs estimated to be saddled with around $9 trillion of debt, addressing the risks and avoiding default in the troubled market has become a daunting task for the authorities.
Read: China’s $9 trillion debt problem worsening, say LGFV insiders
Jiangsu has more than $17 billion of offshore LGFV loans outstanding, accounting for 10% of the total and ranking third among all provinces, according to Beijing G Capital Private Fund Management Center LLP, which cited data from Wind Information Co. . The largest issuer of onshore LGFV bonds, with 3.3 trillion yuan ($452 billion) outstanding, according to Bloomberg-compiled data.
While it is unclear whether the model will be adopted elsewhere, Jiangsu’s move is another sign that scrutiny from all levels of administration is tightening on LGFVs. Moody’s Investors Services said in August that the debt burden on provinces including Tianjin, Henan and Jiangsu is already high and growing, with direct debt and LGFV debt accounting for more than 300% of total fiscal revenue.
–With the assistance of Dorothy Ma.
©2023 Bloomberg LP