Tightened standards to block many LGFVs from selling bonds in Shanghai, Fitch says

China has pledged to trim debts among local government financing vehicles by 2.3 trillion yuan (US$315 billion) by 2028

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People walk past the Shanghai Stock Exchange Building on April 9, 2025. Photo: EPA-EFE

Published: 9:08pm, 18 Apr 2025

The Shanghai Stock Exchange’s decision to tighten its bond-sale standards is expected to prevent many weak Chinese local government financing vehicles (LGFVs) from accessing the public market for fresh capital, according to Fitch Ratings.

“Only a minority of LGFVs that have fundamentally reduced fiscal reliance and transformed their business models to generate sustainable financial returns are likely to issue bonds for financially viable investments,” the rating firm said in a report on Thursday. It did not specify the eligible LGFVs.

Fitch said the stock exchange’s higher standards would not impede LGFVs from refinancing their debts through other means, including access to bank loans to repay older debt or fund new projects.

The Shanghai bourse last month raised the bar for bond issuance, requiring companies to have stronger financials including having sufficient gross income to at least fully cover their interest expense. The yardstick is typically used to assess a company’s financial durability.

LGFVs are special-purpose investment vehicles tasked with raising money from bond investors to help fund infrastructure projects across the mainland. Those sales, which supplement income from land sales, mushroomed after 2008 when China embarked on a 4 trillion yuan (US$648 billion) infrastructure-focused stimulus to overcome the global financial crisis.

Those sales have stoked concerns about the risk of off-balance sheet “hidden debts” in the world’s second-largest economy.