S&P Global is latest to join a chorus of rating agencies sounding the alarm on China’s growing debt.

Quoted by Financial Times, S&P analyst Richard Langberg classified local credit growth in China as a “debt iceberg with titanic credit risks.”

The problem stems from debt growth at the local government level. Via indirect local government financing vehicles (LGFVs), Chinese local governments have accrued debts as high as $6 trillion. The total number is unclear as much of the borrowing is not recorded on official balance sheets, which in turn fuels fears that the problem is more than meets the eye. Going by official numbers, total outstanding local government debt was just $2.42 trillion as of May 2018.

LGFVs exploded following the 2008 crisis as city- and province-level governments borrowed money to keep the economy humming. The money was invested into various infrastructure projects – bridges, highways, airports, etc. – many of which have failed to produce any significant economic return, hence the lingering questions over how these debts can be repaid.

The central government tried to reign in rampant local borrowing in 2014 with a bond swap program that traded off-book debt for on-book bonds. However, LGFV growth actually increased since 2015 according to the World Bank – in parallel with new bond issuances – and maintained an annual growth rate of over 20% through the second half of 2016.