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China's hidden debt risks economic 'chain reaction'

Danger signs flash at debt-laden investment companies owned by local governments

Funds raised through local-government financing vehicles are often spent on wasteful infrastructure projects. (Photo by Yusho Cho)

SHANGHAI -- The financial woes of companies that carry off-balance-sheet debt for China's local governments are fueling growing alarm in Beijing about potential damage to an already cooling economy.

Should a few local government financing vehicles default, a "chain reaction" could ensue, Ma Jun, a member of the People's Bank of China's policy board, warned in an interview with a financial newspaper affiliated with the People's Daily.

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