China's cash-strapped local governments have suddenly rushed to an unusual corner of the debt market in Shanghai where ambiguous rules offer ways to skirt restrictions on onshore borrowing.
Some analysts have described local government financing vehicles as the "black hole" of China's financial system, with debts of more than $9 trillion and rising. But Beijing is counting on their continued spending to help lift aSales by LGFVs of so-called "pearl bonds", which are issued as foreign debt in Shanghai's free trade zone, have soared to a record 72 billion yuan so far this year, official data shows - nearly double last year's total.
Among all the newly-issued FTZ bonds this year, 55, or two-thirds of all 82 issuers, were LGFVs, according to Reuters' calculations. "For LGFVs with relatively low credit ratings, overseas financing is still an important financing channel." To participate, investors must register at the CCDC. In practice, almost all the 30 active accounts are Chinese banks, whose buying power has put the market into a sweet spot.
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