So far, so good. We recently stated that we thought local government financing vehicle (LGFV) debt, given its size and complexity, was the problem Beijing could not afford to get wrong in 2022, especially after what has happened to the property market

(Helen Huang, China LGFVs: The next shoe to drop? 13 October 2021). Investors have reasons to be concerned about what lies ahead in 2022. After all, LGFVs are heavily involved in land development, making them potential targets for the next round of deleveraging policies aimed at reducing the economy’s reliance on real estate, and their debt levels and leverage ratios are still rising. Despite this, LGFV bonds have outperformed the China USD bond market y-t-d, generating positive returns based on what investors see as implied government support (unlike the property sector).