Overdue Commercial Bills Reveal Strained Capital Chains in LGFVs

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LGFVs are special purpose vehicles set up by local authorities to borrow money to fund infrastructure and public welfare spending.

The persistent inability of many of China’s local government finance vehicles (LGFVs) to settle payments of commercial acceptance bills on their due date is indicative of the strain on capital chains in the provinces.

This ongoing issue is adding to the local government hidden debt risk that now faces China.

LGFVs are special purpose vehicles set up by local authorities to borrow money to fund infrastructure and public welfare spending.

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Many of China's local government finance vehicles (LGFVs) are struggling to pay off commercial acceptance bills, reflecting financial strains in provincial capitals and contributing to hidden debt risks.
As of June, 1,397 LGFVs had overdue commercial bills, with 29 notes amounting to 780 million yuan unpaid in June alone.
Provinces with the most overdues by LGFVs in 2023 include Shandong, Guizhou, and Yunnan; notable contributors include Kunming Municipal Urban Construction and Zunyi Road and Bridge Construction.

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Who’s Who

Mile Industrial Park Investment and Development Co. Ltd.: Mile Industrial Park Investment and Development Co. Ltd. is a local government financing vehicle (LGFV) located in Yunnan province. It is among the entities with overdue commercial acceptance bills, indicating financial strain and contributing to the hidden debt risk facing China.

Shandong Zhengfang Holding Group Co. Ltd.: Shandong Zhengfang Holding Group Co. Ltd. is an LGFV in Shandong province. The company attributed its overdue commercial acceptance bills to technical reasons, specifically claiming that its financial staff failed to respond promptly to payment reminders. These overdue payments have since been settled. The company downplayed its credit risk in its announcement.

Lunan (Zaozhuang) Economic Development and Investment Co. Ltd.: Lunan (Zaozhuang) Economic Development and Investment Co. Ltd. is listed as one of the local government finance vehicles (LGFVs) facing issues with overdue payments of commercial acceptance bills. The company, located in Shandong province, is experiencing financial strain, contributing to the hidden debt risk affecting China's local governments. Specific details about the overdue amounts or reasons for the delays were not disclosed in the article.

Linqu Yishan Industry Co. Ltd.: Linqu Yishan Industry Co. Ltd. has an accumulated overdue amount of 151.42 million yuan. Its largest shareholder is the Shandong Linqu County Infrastructure Investment Management Center, controlled by the Linqu County Finance Bureau. The company also has two bonds with an outstanding balance of 740 million yuan.

Qihe Urban Investment and Construction Group Co. Ltd.: Qihe Urban Investment and Construction Group Co. Ltd. is a Local Government Financing Vehicle (LGFV) in Shandong province that has been experiencing overdue payments on commercial notes. This situation adds to the financial strain and hidden debt risk faced by local governments in China.

Tongxiang Chongde Investment and Development Group Co. Ltd.: Tongxiang Chongde Investment and Development Group Co. Ltd., an LGFV in Zhejiang province, is mentioned as having overdue commercial notes among several local government finance vehicles. The article highlights the broader issue of delayed payments and financial strain affecting such entities, contributing to China's hidden debt risk.

Jiangsu Yinbao Holding Group Co. Ltd.: Jiangsu Yinbao Holding Group Co. Ltd., an LGFV, is facing overdue payment issues with commercial acceptance bills. The company issued an announcement attributing their overdues to technical reasons, claiming their financial staff failed to respond promptly to payment reminders. Despite the delays, the company downplayed the credit risk involved in these overdue payments.

Kaifeng Urban Operation and Investment Group Co. Ltd.: Kaifeng Urban Operation and Investment Group Co. Ltd. is a local government financing vehicle (LGFV) that reported overdue payments of commercial acceptance bills, but attributed the delays to technical reasons involving financial staff and downplayed its credit risk. It has since settled the overdue payments.

Kunming Municipal Urban Construction Investment and Development Co. Ltd.: Kunming Municipal Urban Construction Investment and Development Co. Ltd., controlled by the Kunming State-owned Assets Supervision and Administration Commission, has 271 million yuan of commercial bills overdue. The company has appeared on the continuous overdue list, meaning it has missed more than three payments within six months. This could lead to the suspension of commercial bill acceptance, discount, and other services if the situation persists over the last two years.

Zunyi Road and Bridge Construction (Group) Co. Ltd.: Zunyi Road and Bridge Construction (Group) Co. Ltd., the largest LGFV in Zunyi, Guizhou province, has 319 million yuan overdue in commercial bills. It announced a debt restructuring agreement in early 2023, extending 15.6 billion yuan of loans by 20 years. The company is one of the most significant debtors facing continuous overdue payments, with repeated delays in settling dues within the past six months.

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What Happened When

Early 2023：: Zunyi Road and Bridge Construction announced a debt restructuring agreement, extending 15.6 billion yuan of loans by 20 years.

June 2024：: 29 commercial notes issued by LGFVs amounting to 780 million yuan had not been paid. Of these, four were overdue for the first time and nine had seen continuous delays in payment.