China’s debt loads have long loomed as a serious economic risk, and while analysts say new plans to clean up local government borrowing will bring near-term pain, a longer-term fix may be in sight.
“[The new plan] represents the first concrete step by the central government to clean up the debt problems at the local governments,” analysts at Bernstein Research said in a note Friday.
Provincial governments’ debt, often issued via local government financing vehicles, or LGFVs, has worried economists for years. Outstanding debt climbed to around 17.9 trillion yuan ($2.92 trillion) by the end of the first half of 2013, according to the most recent national audit, from around 10.7 trillion in 2010.
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