China province steps up effort to seek state help on debt woes

ONE of China’s poorest and most indebted provinces is making a stronger push for state help to diffuse its financial risk, after local authorities recently sought to draw Beijing’s attention to the severity of its debt burden. 

The south-western Guizhou province has signed a cooperation agreement with China Cinda Asset Management, the nation’s top state-owned distressed asset manager, a major local newspaper reported on Apr 19, offering scant details about the pact. Cinda said a few days later it will send a group of 50 financial experts to Guizhou as part of efforts to help. 

Separately, Agricultural Development Bank of China said earlier this month its president met a delegation of senior Guizhou officials, with the latter expressing hopes for the big state lender to help resolve its financial risk. The province has also inked an agreement with China’s state asset regulator, seeking guidance on state-owned enterprise reforms and cooperation between the central and local authorities. 

The slew of developments indicates the sense of urgency among Guizhou officials to prevent a high-profile default in the province, which hosts some of China’s riskiest local government financing vehicles (LGFV). However, the absence of firm pledges of funding support from the state financial behemoths and the central government itself will likely keep investors on the edge for now. 

“Beijing is still kicking the can down the road, finding bridge finance for weak LGFVs to contain systemic risk. LGFV bonds account for close to half of onshore corporate bonds outstanding, so they can not afford a large default of public bonds,” said Zerlina Zeng, a senior analyst at Creditsights. “But the structural issue is not resolved because of the imbalanced revenue and expense sharing between local and central governments.” BLOOMBERG