Local Government Financing Vehicles (LGFV)

Local government financing vehicles (LGFVs) or urban development investment corporations are established by local Chinese governments and their departments and agencies through fiscal appropriation or injection of assets to perform the function of financing government-invested projects. The LGFV generally borrows funds predominantly from banks (as much as 80% or more), with the remaining raised by issuing bonds or other equity-like instruments to insurance companies, institutional investors, and individuals. In recent times, with pressure on banks to curtail loans, LGFVs have borrowed from the shadow banking system. Shadow banking refers to a diverse set of institutions and structures used to perform banking functions outside regulated depository institutions.

Local governments in China have used LGFVs as an off-budget solution to raise funds for expensive infrastructure and real estate ...