Local government financing vehicle
A local government financing vehicle (LGFV) (Chinese: 地方政府融资平台) is a funding mechanism by a local government in China. It usually exists in the form of an investment company that sells bonds in the bond markets to finance real estate development and other local infrastructure projects.[1] In 2019, LGFV bonds constituted 39% of total outstanding corporate bonds in China's domestic (onshore) bond market, with widely varying credit risks.[2]
The bonds that LGFVs sell are known as "municipal investment bonds" or "municipal corporate bonds" (城市投资债券 or 城投债), which are repackaged as "wealth management products" and sold to individuals.[3]
Since local governments in China are not allowed to directly participate in the municipal bond market, LGFVs have played a unique role in securing funding for local governments to develop their economies. Both the number and the indebtedness of LGFVs have soared in recent years, sparking fears about their inability to repay debts as well as subsequent defaults.[4]
References[]
- ^ Kozhevnikov, M. Yu. (2019). "Debt of Local Governments of China: Assessment Issues and Analysis". Studies on Russian Economic Development. Pleiades Publishing Ltd. 30 (6): 714–716. doi:10.1134/s1075700719060066. ISSN 1075-7007.
- ^ "Offshore and onshore LGFV bond issuance to reach record highs in 2019". Moody's. August 28, 2019. Retrieved 16 February 2021.
- ^ "Risk Comes Home as LGFV Dollar Debt Cocktails Sold in China". Bloomberg News. 9 February 2017. Retrieved 3 October 2021.
- ^ Clarke, Donald C. (June 5, 2016). "The Law of China's Local Government Debt Crisis: Local Government Financing Vehicles and Their Bonds". Search eLibrary. Retrieved February 16, 2021.
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