S&P downgrades Chinese local governments

According to CER, Ratings agency Standard & Poor’s has downgraded seven Chinese local-government financing vehicles (LGFVs) on expectations that local authorities’ reduced willingness to provide bailouts will raise uncertainty for borrowers, the media reports. S&P downgraded Chinese local governments over default fears.

 

“We are lowering our long-term issuer credit ratings on seven LGFVs to reflect the gradual weakening of their roles and links with their local-government parents,” S&P said in a statement. Regarding the remaining eight institutions, the agency concluded that “the likelihood of extraordinary government support” was unchanged.

 

Beijing’s deleveraging campaign has hoped to cut back the level of off-budget financing carried out by local governments to fund regional infrastructure projects. LGFVs have been popular among authorities for subverting restrictions on direct borrowing, which often leave local governments short of cash for their spending plans to boost local demand.

 

“Our view on the transition in role and link of LGFVs [with local governments] is based on Chinese central government’s efforts to enforce a greater separation between local Chinese governments and their financing vehicles,” S&P said.

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