Asset hunters see a different local government debt picture

May 09, 2014 14:59
Media reports suggest a potential collapse of the housing  market, but such a scenario appears far from imminent. Photo: Reuters

If we are to believe the doom and gloom forecasts of some analysts, many local governments are about to default on their growing debts as China's economic expansion slows. However, investors on the ground see things a bit differently.

Pan Yongqiang, deputy general manager of toll road operator Yuexiu Transport Infrastructure (01052.HK), has been in constant contact with local authorities, looking for cheap assets to snap up. So if local governments are really desperate for funds, life would have been a lot easier for him.

Local government financing platforms are supposed to be under tremendous repayment pressure, so Pan has heard from media reports. But to his surprise, none of them are doing any fire sale.

“Media may have exaggerated the situation a bit," he says. "If these local government platforms are so cash-strapped as reported, they would be much keener to offload their assets for cash.”

But no buyer's market has emerged so far.

Media’s latest favorite topic is the potential collapse of China's housing market. Home sales have slowed significantly in the last two months, a marked difference from last year's record-breaking turnover.

Time was when mainlanders were worried they could never afford to have their own apartments amid the surging prices, but now they are said to be jittery about a prolonged housing recession.

Land sales are an important source of revenue for regional governments. If such income falls, local cadres have to raise funds elsewhere. And if that happens, Yuexiu may get the break it has been waiting for.

But judging from Chinese media’s penchant for overplaying an issue, such a scenario is probably anything but imminent.

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EJ Insight writer