John At The Center

According to Shih, the rot is located in the so-called Local Government
Financing Vehicles (LGFVs) belonging to one of China’s many levels of
local government ranging from towns and counties to cities and provinces.
LGFVs are conduits, like the Special Investment Vehicles (SIVs) were
for western banks, used by local government to borrow and spend on
infrastructure and other projects (like real estate).

Local governments inject land banks, SOEs and cash into a LGFV to give
it assets and a capital base for borrowing. Guarantees of LGFV debt by
local governments are also common (as are guarantees of one LGFV’s
debts by another). The usefulness of the LGFV is that it allows local
government to borrow and spend way in excess of its own budget, where
normally tax revenues cover only about half expenditure (with the rest
coming from Beijing). Local government deficit spending is not allowed.
via Remember SIVs? China Has ‘Em And They’re Hiding A Massive Credit Bubble.