China's 'hidden' defaults reflect weak local government finances

TOKYO -- China's recent plan to help local governments arrange purchases of unsold private-sector housing comes amid increasingly clear cracks in the finances of municipalities that rely on the property market for revenue.

Underscoring the problem are the struggles of local government financing vehicles -- investment companies used as an alternative channel to finance infrastructure spending -- to repay their massive debts. This difficulty is illustrated by a rise in "hidden" defaults outside public debt markets.