Comprehensive Analysis of China’s Local Government Financing Vehicle Debt

The total amount of unpaid debt in China’s Local Government Financing Vehicles (“LGFVs”) has reached a staggering 65 trillion yuan, highlighting the need for a thorough analysis of the country’s local debt problem and financial development model. This paper focuses on the crisis of China’s LGFV debt, systematically analyzes the causes of debt formation, risks faced by local investment companies, the social impact of debt defaults, and measures to respond to the debt crisis. Additionally, it explores the commonalities of debt problems with other typical cases worldwide. Results show that: (1) China’s LGFV debt reflects an unhealthy development model, involving problems such as unreasonable financing, excessive credit, and poor government decision-making; (2) Resolving the debt problem requires addressing short-term debt relief and long-term financial system reform, local financing development model reform; (3) The debt problem is due to reasons such as an unreasonable economic structure, an unsound financial system, unscientific government decision-making, and an irrational fiscal system, causing a chain reaction globally; (4) China needs to deepen financial and fiscal reform, strengthen local government fiscal capacity, promote financial services for the real economy, and pay more attention to financial regulation.