China Retreats to Financial Shadows to Boost Economic Growth

Monday, August 17, 2015

On a sweltering day in August, the towering ferris wheel and massive roller coaster of China’s Jiyanghu Ecological Park, a two-hour train ride from Shanghai, stand eerily silent.

Down a shady lane buzzing with cicadas, a security guard stands inside the near-deserted park’s administration building, its foyer featuring a reflecting pool and a two-storey-high stone relief of traditional Chinese figures in flowing robes.

“We have a large shopping and dining district here, and the amusement park here,” says an employee offering a glossy brochure and a cup of tea in an office upstairs.

“But I have no idea where the financing comes from.”

The amusement park, built three years ago in the dusty port city of Zhangjiagang, is owned by the municipal government and is being funded through a channel that until recently was being phased out by Beijing: the local government financing vehicle.

These murky vehicles, which do not appear on a local government’s balance sheet, are roaring back to life, funding new projects and, as in the case of the amusement park, refinancing old debts as Beijing tries to spur the economy.

Their return is an admission by Beijing that commercial banks alone cannot fund a badly needed revival in investment.

Source: Reuters (link opens in a new window)