In­vestors yield to

Debt prod­ucts from lo­cal govern­ment fi­nanc­ing ve­hi­cles are darlings on the mar­ket, re­ports Zheng Yangpeng.

China Daily (Canada) - - BUSINESS -

Li Jia, a fund man­ager with ICBC Credit Suisse As­set Man­age­ment Co Ltd, has not had muchtime to talk to the me­dia lately. The first-half bull mar­ket for bonds had her tied up in one meet­ing af­ter another, dis­cussing mar­ket strate­gies. Among var­i­ous in­vest­ment op­tions, she said she feels that cheng­tou (ur­ban in­fras­truc­turein­vest­ment) notes are a safe bet. Her be­lief is widely shared in com­mu­nity.

Cheng­tou notes are debt prod­ucts is­sued by China’s lo­cal govern­ment fi­nanc­ing ve­hi­cles, of which there are be­lieved to be more than 10,000.

These ve­hi­cles were cre­ated to fund ur­ban con­struc­tion projects, since mu­nic­i­pal gov­ern­ments are barred from deficit fi­nanc­ing un­der the cur­rent Bud­get Law. The ex­plo­sive growth of LGFVs,

the

in­vest­ment which in the past few years have built nu­mer­ous “newc­i­ties” across the coun­try, pro­pelled the ex­tra­or­di­nary surge in China’s debt in the af­ter­math of the 2008 global fi­nan­cial cri­sis.

“Cheng­tou won’t de­fault in the near term,” Li said. But when asked about the longer term, she re­sponded: “It’s not clear. But we don’t care. Nowa­days, we’re just look­ing at short-term hold­ings. Few hold these notes for the long term.”

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