China’s Local Governments Face an All-Too-Familiar Trap in the Latest Wave of Investment Vehicles

Local governments across China have launched thousands of CTICs in recent years, often structured to leverage public assets like land and tourism resources to raise financing outside the conventional LGFV model. These entities typically assume the promotional role of localities, developing cultural parks, tourism resorts and intangible-asset projects, but are increasingly being used to stretch financing capacity. Analysts point out that many of these CTICs estimate project returns optimistically while relying on weak revenue models such as modest rentals or local subsidies, with limited commercial viability.

The warning signs echo the LGFV era. Just as LGFVs piled on debt backed by land-sale collateral and infrastructure projects with modest returns, many CTICs are following a similar playbook, projected high returns, debt-funded expansion, and an assumption that local governments will plug the gap. In reality, some CTICs already exhibit liability-to-asset ratios exceeding 60 % and are increasingly squeezed by declining land-sale revenues and tighter national debt-control policies. Moreover, as the central government cracks down on local fiscal risk and limits LGFV borrowings, the financial cushion available to CTICs is shrinking, raising doubts about their sustainability in less favourable conditions.

The transition from LGFVs to CTICs therefore carries real economic implications. If many CTICs cannot generate sufficient market-driven cash flows, the burden may fall back onto the local governments, creating contingent liabilities and potentially undermining local fiscal stability. Experts recommend shifting toward more market-oriented models, bringing in private capital, reducing upfront debt exposure and better leveraging public assets. For domestic and global investors, the emerging CTIC model merits caution: what appears as innovation may in fact be a rerun of debt-driven local government financing with weak governance and hidden risk.

Finally, the issue underscores China's broader structural challenge: aligning local government incentives with sustainable investment and avoiding the trap of perpetual land-sale reliance and off-balance sheet obligations. The new wave of CTICs, if unchecked, may reignite the financial stress of the LGFV era under another label, and complicate China’s efforts to stabilise fiscal risk as economic growth slows and property market weakness persists.