Debt Swaps Hollow China's Credit

China’s program of swapping hidden local‑government financing vehicle (LGFV) debts onto official balance sheets is shrinking domestic credit creation: banks absorb long‑dated local bonds, lending growth stalls, and local governments face fiscal pressure that forces ad hoc revenue measures and asset‑repackaging. Policymakers are responding with more bond issuance, targeted bank recapitalisation ($54 billion), and proposals to securitise infrastructure and even human‑capital investments — but these are financing workarounds, not immediate demand engines. — If domestic credit creation is structurally impaired, China’s trade surplus and high‑tech export strength may not sustain growth, with spillovers for global demand, capital markets, and industrial policy competition.