(Bloomberg) -- One of China’s poorest and most indebted provinces is making a stronger push for state help to diffuse its financial risk, after local authorities recently sought to draw Beijing’s attention to the severity of its debt burden. 

The southwestern Guizhou province has signed a cooperation agreement with China Cinda Asset Management Co., the nation’s top state-owned distressed asset manager, a major local newspaper reported on April 19, offering scant details about the pact. Cinda said a few days later it will send a group of 50 financial experts to Guizhou as part of efforts to help. 

Earlier this month, Agricultural Development Bank of China said its president met a delegation of senior Guizhou officials who expressed hopes that the big state lender would help resolve financial risks. The province has also inked an agreement with China’s state asset regulator, seeking guidance on state-owned enterprise reforms and cooperation between central and local authorities. 

The measures will help liquidity of local government financing vehicles “in weak provinces, especially those with limited local financial/banking resources” and broader market sentiment onshore for LGFV bonds, according to CreditSights senior analyst Zerlina Zeng. Guizhou has also working to have LGFV bank loans extended, so Cinda’s involvement “could help take some heat off the local banks,” she said.

The developments indicate the sense of urgency among Guizhou officials to prevent a high-profile default. The province hosts some of China’s riskiest LGFVs. Their debt outstanding as of April 12 was 318 billion yuan ($46.1 billion), according to calculations by Guosheng Securities. 

The absence of firm funding-support pledges from state financial behemoths and the central government itself will likely keep investors on the edge for now even as a Chinese LGFV has yet to default on public debt. 

Local-government debt has mounted in the wake of Covid-related spending increases and tax-revenue declines. Borrowings for a majority of provinces top a key threshold, according to Bloomberg calculations.

“Beijing is still kicking the can down the road — finding bridge finance for weak LGFVs to contain systemic risk,” Zeng said. “LGFV bonds account for close to half of onshore corporate bonds outstanding so they can not afford a large default of public bonds. But the structural issue is not resolved because of the imbalanced revenue and expense sharing between local and central governments.”

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