How to view urban investment bonds?

Aug 31, 2024#城投债74

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The author discusses three critical issues with urban investment bonds (城投债) in China: 1. These bonds are rigidly tied to local government operations and salary payments, meaning that if the debt stops, salaries will too, along with other essential services like social security. 2. Most losses in urban investment bonds arise not from corruption but from leveraging projects and unsustainable financial practices, making it impossible to recover losses through traditional means like prosecuting corrupt officials. 3. Urban investment companies often use aggressive financing strategies to meet political goals, which can lead to dangerous and unsustainable financial practices. Overall, urban investment bonds represent a highly risky and innovative area of global finance, with issues that are urgent and worsening, leaving the future uncertain.

Zhihu Author: Crown of Tokamak

Currently, there are three critical issues with urban investment bonds, and each one is nearly unsolvable.

Urban investment bonds are rigidly tied to the local government's operations and salary payments. A large amount of debt has been created solely for the purpose of paying salaries; once the debt stops, salaries will stop as well. This doesn't even account for other dependencies, such as social security.
Most of the losses in urban investment bonds are not due to corruption, but rather from leveraging projects and consuming future resources. This means you can't even fill the losses by targeting corrupt officials and seizing their assets.
Urban investment companies often adopt extremely aggressive financing schemes to raise funds for political tasks. Many of their plans cannot withstand scrutiny; upon closer examination, it becomes clear that they are merely a normalized practice of drinking poison to quench thirst.

It can be said that the current urban investment bonds represent the most radical, cutting-edge, and reckless area of global financial innovation, without exception. Some practices that Wall Street wouldn't dare to attempt are boldly undertaken by urban investment companies across various regions.

The problems are urgent and increasingly severe. What should be done? Only heaven knows.