China's cities face surging funding costs on default concerns

Shanghai

CHINA'S cities, towns and counties are facing surging borrowing costs as investors anticipate landmark defaults.

A local government financing vehicle (LGFV) in the country's east was recently forced to pay a coupon on a bond that matched a record. Average financing costs in credit markets for the units that finance roads, bridges and sewers have jumped, with yields for some borrowers surging the most in six years.

Chinese investors are gradually accepting a new reality: the government is reducing suppo…