After three years of strict pandemic controls and a prolonged real estate crisis, local government bodies in China accumulated an estimated 123 trillion yuan ($18 trillion) of debt last year, according to a report by CNN, which said the problem is so bad “that some cities are now unable to provide basic services” and are at risk of default.
Analysts said this figure includes $10 trillion of “hidden debt” owed by local government financing platforms backed by cities or provinces, which were forced to slash wages and cut transport services or fuel subsidies in the middle of a harsh winter, the report said. But with local governments having “exhausted their budgets” after spending huge sums enforcing Covid lockdowns, mass testing and manning quarantine centres, it is reportedly not yet known if Beijing will bail them out, which led to a warning by Rhodium Group last week of a “significant risk of financial contagion” if small city and rural banks default because of their close ties to local governments.
Read the full report: CNN.
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