In Depth: Why China’s Efforts to Resolve Hidden Government Debt Could Fall Short

By Cheng Siwei, Ding Feng, Zhang Yuzhe and Zhang Yukun

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Debt restructuring or swaps for LGFVs, either through banks or special refinancing bonds, will only provide temporary relief against an imminent liquidity crisis, scholars and analysts say.

China’s central government has rolled out a new round of measures since the second half of last year to help local governments swap or restructure their off-the-books borrowing in a bid to control debt risk.

However, the sheer scale of the country’s local government hidden debt — up to more than 70 trillion yuan ($9.8 trillion) according to some estimates, more than twice Germany’s GDP — means that the measures at best are far inadequate and will provide only temporary relief to what experts say is a looming liquidity crisis for regional authorities.