China’s hidden debt: ‘corruption problem’ at local levels threatens political, economic stability

  • Debt issued by local government financing vehicles (LGFVs) is kept off the balance sheets and thus more susceptible to corruption than relatively transparent government bonds
  • But analysts say LGFVs are poised to play bigger role next year in filling local government funding gaps, despite risks to national economy

The line between China’s anti-corruption and deleveraging campaigns is becoming increasingly blurred as Beijing looks to tackle both political and economic problems that are interwoven at various levels of local government.

Since the beginning of the year, various provinces across the country have declared their commitment to “dig deep into the corruption problem hidden in the risks of local government debt”.

In a work report published earlier this month by the Commission for Discipline Inspection and Supervision of Jiangsu – one of China’s richest provinces – three former local officials were named and shamed as “typical examples” of the corruption problem behind hidden local debts.

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One name singled out in the provincial disciplinary watchdog’s report was Qi Biao, the former deputy director of the provincial Development and Reform Commission, who was sacked last December and expelled from the Communist Party in June.


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