The government of the province-level municipality of Tianjin is currently facing significant financial stress. Local GDP has been revised lower for the second time in three years, debt service is consuming significant proportions of new credit, and property prices are falling. Tianjin’s state-owned enterprises have defaulted on bonds and shadow banking products, and now the city’s second-largest local government financing platform, TEDA (Tianjin Economic-Technological Development Area), is facing rising financing costs as well.
Tianjin’s condition may be a bellwether for other troubled local governments unable to back up their implicit and explicit guarantees on assets and state-owned firms. As markets and lenders lose confidence in those guarantees, local credit growth, economic activity, and property prices will fall, deepening the local fiscal crisis. Tianjin’s condition is also likely to inspire speculation about the possibility of explicit bailouts of local governments by Beijing, similar to the late 2009 rescue of troubled Dubai.
