What Happened: A state-owned asset management firm in western China made payments on a bond after missing a deadline in a rare instance of bond default by a local government financing vehicle (LGFV), Reuters reported Aug. 15. Not long after announcing it would go into default, Sixth Division State-Owned Asset Management Co Ltd, a division of Xinjiang Production and Construction Corps, said the payment had been delivered with interest.
Why It matters: Despite policy adjustments from Beijing designed to spur growth, local financing vehicles and related platforms are at risk of default thanks to the sluggish property market, weak local revenue and a jump in manufacturing debt. A default by an LGFV such as the Sixth Division State-Owned Asset Management Co Ltd would signal that even state-affiliated financing vehicles are not guaranteed to receive state bailouts, thereby dampening investor confidence in LGFV bonds.
Background: China is attempting to unwind the country's massive debt, which has largely accumulated at the local level in the aftermath of the 2008 global financial crisis.