China's Local Governments Turn to Risky Shadow Banks for Cash

China's campaign to reduce local government debt is pushing state-owned companies toward high-cost loans from shadow banks. This shift is raising new risks within a secretive part of the country's financial system. Even entities in wealthy provinces are now seeking credit from these non-bank lenders. This borrowing is a stopgap measure after the national crackdown restricted their usual funding. The trend marks the return of China's shadow-banking market. These lenders operate with looser rules than traditional banks. Authorities had worked to control this sector in recent years to lower financial risk. Since September, local government financing vehicles and industrial investment arms have increasingly used these costly channels. This activity highlights the ongoing pressure on local finances despite the broader debt reduction effort.