Debts are high on the agenda of the central and local governments, as local resources to pay debts of get capital for investments diminish, tells associate-professor Victor Shih in Bloomberg. The efforts of the central government to relieve local governments from debts might not help everybody.
The severity of the local-authority funding squeeze is especially acute in the northeastern province of Liaoning, where first-half revenue slumped 23 percent, and this month it failed to sell bonds even with coupons 15 percent higher than similar maturity sovereign debt.
“With the decline in land sales in all but a small handful of cities, many localities will have problems servicing debt, much less to finance new construction projects,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance.
While the central government has put in place a program to swap higher-interest local debt with longer-maturity, lower-cost bonds, that initiative won’t help every region, according to Shih. It “will mainly favor provincial capitals and major cities, leaving smaller cities in deep fiscal distress,” he said.
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