China's debt-ridden Guizhou faces a reckoning after years of costly projects

“In the past there were indeed some development pressures, but with the help of the central government and the integration of the eastern and western regions, we have found a solution. [debt] difficulties to a considerable degree,” said Zhao Ziyi, Guizhou deputy of the National People's Congress (NPC) and dean of Guizhou University of Finance and Economics, on the sidelines of this week's annual meeting of the National Assembly in Beijing.

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Investment is part of various tools to boost the provincial economy, but consumption has „gradually” become a driver, Zhao said.

Meanwhile, Guizhou has made progress in the development of smart farming models, improving its crop-growing capacity, according to state media reports. What's more, Zhao said, the service sector in Guizhou has undergone „enormous” changes over the years. He said that transport-related investments have led to more people visiting or living in the area.

“The role of investment in the entire economy is gradual [replaced] by others. We will work together to overcome this difficulty,” he added.

The Guizhou government announced on February 23 that it has allocated 319.74 billion yuan (US$44.5 billion) for infrastructure projects, down 60 percent from 800.39 billion yuan in 2023. The average annual cost for large-scale projects is approximately 770 billion yuan. for Guizhou between 2017 and 2023, based on government data.

Investments in local government financing vehicles (LGFVs) — platforms used by local governments to borrow from the budget to finance infrastructure projects — have been cut by the Guizhou government amid calls from Beijing to tackle local debt problems.

Guizhou has sold 258.8 billion yuan of Guizhou „special refinancing bonds,” which aim to replace high-yielding LGFV debt with low interest payments, GF Securities said, after Beijing approved the sale of such bonds in October. Value of such loan by 23rd February.

Although fixed asset investments in Guizhou helped accelerate its gross domestic product (GDP) growth to the top three in China between 2011 and 2020, the province has failed to create profitable new industries. Traditional production BaijiuA distilled Chinese liquor has long contributed to the growth of tax revenue for the local government.

Meanwhile, Guizhou's debt pressure continued to rise as more than 100 LGFV private transactions defaulted between 2018 and 2022, according to GF Securities' estimates, prompting serious concerns about Guizhou's ability to repay its borrowings.

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The cash-strapped province has been embroiled in several controversies stemming from its financial woes, including LGFV's 20-year debt transfer due in 2023. A former party official in Guiyang, the capital of Guizhou, admitted in a state media documentary in January that he spent recklessly on large-scale tourism projects while in office.

Xia Xiaoqing, a lawyer at Jiangxi Xunbo Law Firm, said there are always risks associated with local government contracts, even though they often come with guarantees.

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„However, government projects are managed by specific authorities,” Xia said in a commentary posted on the law firm's social media account on WeChat on Tuesday. „Therefore, the risks of government projects are human risks. We hope that government project management will be further standardized to follow the rule of law.

China's finance minister, Lan Fon, pledged on Wednesday to improve the management of local government debt and gradually address the risks associated with it through „high-quality growth.”

Some analysts do not expect Guizhou's debt burden to disappear anytime soon. This year, Guizhou will see a total of 74.23 billion yuan worth of LGFV debt mature, or one-third of its outstanding LGFV debt, and the ratio will rise to 37.1 percent in 2025, according to GF Securities estimates.

„The debt created by Guizhou's investment-driven growth model over the past 10 years will take considerable time to resolve, and the impact of the epidemic on its tourism industry will take time to adjust,” GF Securities said in a note on February 29. .