China orders local governments to cut exposure to public-private projects as debt risks rise

Market Impact

Debt-laden local governments represent a major risk to the Chinese economy and its financial stability, economists say, amid a deepening property crisis, years of over-investment in infrastructure and huge bills to contain the COVID-19 pandemic. A portion of the $12.6 trillion local government debt is linked to the PPP projects, as municipalities used these infrastructure-building initiatives as a conduit to raise capital. As of the end-2022, China had implemented more than 14,000 PPP projects with the value of investment worth 20.9 trillion yuan ($2.87 trillion), or roughly the size of France’s economy, according to a research note by Bank of China.