China’s property slowdown sheds light on another worrying debt problem

WHEN OFFICIALSLGFVLGFV in the southern city of Liuzhou began a routine auction of parcels of land in June, they found few takers. Only one of five plots received a bid; the rest went unsold. As in many cities across China, a downturn in the property market has meant less demand for the land on which apartment towers are built.That is bad news for local governments, which rely on the sales for the bulk of their revenues. It is also a troubling sign for the holders of bonds issued by local-government financing vehicles (s), the half-public, half-corporate concoctions that have become a cornerstone of Chinese development. Cities’ land-sale revenues are often used to repay these bonds. After the auctions flopped in Liuzhou, rating agencies downgraded two of the city’s s on fears that the government would struggle to service their debts.