Jiangsu, one of China’s most affluent provinces and a major industrial center, has required LGFVs to register their offshore bond sales plans with the local government, according to people familiar with the matter. The goal is to better manage overseas issuance and curb debt financing costs, said the people, who asked not to be identified as they aren’t authorized to publicly discuss the issue.
While the LGFVs have to seek official approval from the National Development and Reform Commission, the state planner, Jiangsu’s new procedure also requires registration with the Ministry of Finance’s local branch, the people said. Some of the planned issuances have been delayed given the need to adhere to the latest change, they said.
The finance department of Jiangsu’s provincial government didn’t respond to an email from Bloomberg News seeking comment, while the Ministry of Finance didn’t respond to a fax query on whether the province’s approach was a pilot project. China’s local governments are under intense financial pressure as an economic slowdown hits revenue, with a years-long real estate crisis undermining income from land sales to builders. With the country’s LGFVs estimated to be sitting on some $9 trillion pile of debt, resolving risks and avoiding default in the troubled market has become a major task for authorities.
While it’s unclear whether the model will be adopted elsewhere, Jiangsu’s moves are yet another sign that the scrutiny over LGFVs are getting stricter from all levels of administration. Debt burdens are already high and growing for provinces including Tianjin, Henan and Jiangsu, with direct debt and LGFV debt surpassing 300% of total fiscal revenue, Moody’s Investors Services said in August.