Can the new breed of municipal bonds refinance
local governments’ non-performing
Local government debt and looming real-estate bubbles are
believed to be China's two major economic risks. International
financial institutions are sounding the alarm by pointing to
the numbers published by China's National Audit Office.
According to the Office, the outstanding balance on local
government debt was about CNY 3.2 trillion ($521 billion) in
2008, CNY 10.7 trillion in 2010, and CNY 17.9 trillion at the
end of June 2013.
Today, land reserves and local state-owned enterprises are
the main forms of local government assets. Due to the fact that
most of their debt is secured with real estate, local
governments have a strong interest in maintaining and even
increasing real estate prices. Unfortunately, this constant
upward pressure helps to trigger real-estate bubbles.
On the liabilities side of their balance sheet, bank loans,
bonds and shadow...