China’s LGFV Market Boom Belies Municipalities’ Fiscal Woes

By all appearances, the market for China’s local government financial vehicle bonds is booming once again.

After Beijing stepped in to financially support local governments, sales of bonds issued by their financing vehicles have surged nearly 50% on-month in August, and the average interest rate investors are charging has fallen more than 1 percentage point from the beginning of the year, according to Bloomberg calculations.

But just beneath the surface, a clear sign of stress is emerging. The average maturity of LGFV bonds has declined by half a year as they increasingly sell debt maturing in 12 months or less, ...