BEIJING, May 18 (Reuters) - A firm controlled by a city government in China’s Inner Mongolia region has failed to make interest and principal payments on nearly 4 billion yuan ($629 million) in off-balance sheet loans, two sources with direct knowledge of the matter said.
Xilinhot Geipaishui Co, a local government financing vehicle (LGFV) controlled by the government of Xilinhot city, has failed to repay loans provided by more than 20 mostly state-run leasing firms, said the sources, who were from two of the leasing companies involved.
The loans were borrowed by the company on behalf of the local government to fund infrastructure construction, the sources said, declining to be identified.
The Xilinhot city government declined to comment.
The rare loan default highlights growing funding strains on local governments as the central government cracks down on riskier types of financing and rising debt.
It also points to the tightrope that Chinese leaders must walk. While policymakers want to rein in financial risks, they also need to ensure economic stability. (Reporting by Pei Li and Kevin Yao; Editing by Ryan Woo and Kim Coghill)