Why LGFV Debt Is a Growing Risk for China’s Economy: QuickTake

Cracks are showing in a pillar of China’s debt market known as local-government financing vehicles, or LGFVs. Created to fund such things as roads, airports and power infrastructure, they rarely generate enough returns to cover their obligations. That means most rely on injections of municipal funds to stay solvent. With many local authorities facing cash-flow problems due to the country’s real estate crisis, there are growing concernsabout this $9 trillion market — prompting the government to take steps to effectively bail out weaker issuers and avert a credit crunch.

1. How do LGFVs work?

LGFVs were originally established ...