Regulators are once again playing whack-a-mole to stamp out practices local government financing vehicles (LGFVs) are employing to evade efforts to curb their borrowings.

Having loosened the reins on local government debt last year to help the economy recover from the impact of the Covid-19 pandemic, authorities this year have resumed their long-standing campaign to control and defuse financial risks. One of their main targets is hidden local government debt and in particular the borrowings of the financing vehicles they control, typically local state-owned investment companies.

In a document sent to financial institutions recently, the China Banking and Insurance Regulatory Commission (CBIRC) laid out a series of measures, both existing and new, to tackle the problem and fix loopholes that have allowed LGFVs to skirt rules on borrowing limits. The Guiding Opinions on Banking and Insurance Institutions to Further Improve the Prevention and Resolution of Hidden-Debt Risks of Local Governments has not been published but some of its contents have been revealed in analyst reports and by sources who spoke to Caixin. Guiding opinions (指导意见) are documents issued by government authorities to communicate policies and put forward views and solutions on issues of importance.