China’s local governments had 14.8 trillion yuan ($2.3 trillion) of hidden debt last year, and the figure could climb even further this year, according to a government-linked think tank. Local governments were under pressure to increase infrastructure investment and shore up growth through the pandemic, leading to a 6% rise in off-budget borrowing from a recent low of 13.9 billion yuan in the third quarter of 2019, according to Liu Lei, a senior researcher at the National Institution for Finance and Development.

The hidden debt is comprised of funds raised by government-related entities for infrastructure and other public projects that carry an implicit official guarantee of repayment. Bonds sold by local government financing vehicles, or LGFVs, are one way provincial authorities raise money to increase spending without including it on their official balance sheets.

Source: Bloomberg