(Bloomberg) -- China will allow government-owned borrowers in Guizhou province to negotiate with banks to extend debt repayments, stoking fears the local authorities may be struggling to meet debt obligations. 

“Financing platform companies will be permitted to negotiate with financial institutions to appropriately extend the maturity of existing hidden debt that meet certain requirements or restructure their borrowings to maintain cash flow,” according to a statement from the State Council on supporting Guizhou’s development.

Such deals should be struck on the condition that local governments take the responsibility of resolving debt risks and off-balance-sheet borrowings do not increase, according to the Wednesday statement. A new quota of local government debt will be allocated to the province “in a moderate manner” to support construction of government projects while ensuring that debt risks are controllable, it added.

Guizhou in China’s mountainous southwest is one of the poorest provinces and the borrowing costs of its local government financing vehicles have long been among the highest in the country. The State Council’s statement triggered speculation that the local authorities do not have better options to keep the entities afloat, forcing Beijing to pull back on efforts to cut risky borrowing as it seeks to boost economic growth with faster infrastructure investment this year.

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“Does the model of debt extension or restructuring suggest fiscal resources are extremely stretched to deal with the problem?” Li Yuze and Yin Ruizhe, analysts with China Merchants Securities Co., wrote in a Thursday note. “Such a model could be possibly rolled out nationwide,” they wrote.

Guizhou has more than 200 billion yuan ($31.5 billion) in outstanding LGFV debt, according to data compiled by Bloomberg. The weighted average yield on the entities’ five-year bonds issued last year is 6.68%, the third-highest among peers across the nation, and above the national average of 4.82%.

In contrast, rich provinces are claiming progress in reducing or even eliminating off-balance-sheet borrowing after years of bringing the liabilities onto their books. Guangdong province in south China announced earlier this month that all existing hidden government debt has been dealt with after a new round of budget reforms adopted in 2021.

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