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