Shanghai to clear hidden debt as China cuts risks, AUDUSD up as consumer prices rose more than expected

Shanghai has launched a trial to eliminate the hidden government debt, in order to clean up off-balance-sheet risks. Shanghai’s decision came two weeks after Guangdong province, the manufacturing powerhouse in southern China.

Guangdong announced a similar trial, suggesting local governments are getting more serious about tackling off-balance-sheet debt. A major source of hidden debt is local government financing vehicles (LGFVs). Analysts estimate that hidden debt in China has reached $8.3 trillion at the end of 2020. The amount is equal to about 52% of China’s current GDP. Cities and provinces may have started to use some of the proceeds from the sale of refinancing bonds to repay hidden debt.

The AUDUSD pair rose 0.34% to 0.7524 at press time. The strength comes from the latest core consumer prices, which rose faster than expected over the last quarter. The Q3 growth rate was 2.1%, compared with the forecast at 1.8%. The increase sent the currency higher and has exerted some pressure on RBA, which has 2-3% as its inflation target.