The real worry concerning the China Evergrande default drama is the inevitable where-there’s-smoke-there’s-fire paranoia that accompanies debt stumbles.

The most worrisome such blaze, say analysts at Goldman Sachs, is surging local government debt levels that President Xi Jinping’s men have done their best to hide. The default troubles at the globe’s most indebted property development seem like small embers compared to the $8.2 trillion worth of local government financing vehicles outstanding.

And that’s just the LGFVs we know of. The data that Goldman’s Maggie Wei highlights is as of the end of 2020. Clearly, the tally is higher now—perhaps markedly. Ten months ago, these shadowy investment schemes had reached 53 trillion yuan, up from 16 trillion yuan, or $2.47 trillion, in 2013. They now amount to roughly 52% of China’s gross domestic product, topping the official amount of outstanding government debt.

In other words, as scary at the $300 billion Evergrande story might be, Xi’s government has much bigger problems on its hands. The most acute: keeping GDP this year from falling too far below the 6% Beijing hoped to produce without adding to the nation’s bubble troubles.

The forces behind local governments sitting on financing-vehicle debt worth twice the size of Germany’s GDP date back to 2008. Even before the Lehman Brothers crisis, Communist Party dynamics encouraged municipal borrowing binges. The way local officials got attention in Beijing—and rose to national prominence—was producing above-average GDP rates.

https://www.forbes.com/sites/williampesek/2021/09/30/goldman-flags-82-trillion-threat-worse-than-china-evergrande/