China’s dilemma over a curious breed of financial firm

China’s local-government financiers have a complex identity. Tasked with developing land and doing public works, they act on behalf of, and with approval from, city and provincial authorities. Yet at the same time they represent large companies, known as local-government financing vehicles (lgfvs), which have the ability to raise billions of dollars from global investors. The thousands of lgfvs around the country owed an estimated 53trn yuan ($8.3trn, equivalent to 52% of annual gdp) in debts last year.

Conflicts of interest have naturally arisen for the bosses of these hybrid firms. In some cases they have been caught giving chummy private companies lucrative stakes in government projects. Others have used their official status to guarantee bank loans for friends. In Sichuan province a government financier was recently found to have lent out state funds to private firms at rates as high as 20% a year. In Hunan province a boss was caught charging companies that work with the government consulting and paperwork fees. Such practices might fly in the private sector—but not with anti-corruption investigators.