Signs are growing in China that local government debt burdens are becoming unsustainable.
China’s 31 provincial governments have a stockpile of outstanding bonds that’s close to the Ministry of Finance’s risk threshold of 120% of income. Breaching that line could mean regions will face more regulatory hurdles to borrow, hampering their ability to drive up economic growth.
Local authorities will also face a massive maturity wall over the next five years as bonds worth almost 15 trillion Yuan (US$2.1 trillion) — over 40% of their outstanding debt — fall due.
While there’s little risk of provincial governments defaulting, they will run into increasing difficulty in repaying their debts.
