(Bloomberg). — Shanghai was the second Chinese area to launch a program to reduce off-balance-sheet risk.

The trial was in response to the central government’s strategy to prevent and resolve financial risks related to local government hidden debt, the Shanghai city government said in a statement on its website Tuesday. It didn’t provide further details on the trial.

Two weeks ago, Guangdong, the southern China manufacturing capital, had announced a similar trial. This suggests that local governments are becoming more serious in tackling off-balance sheets debt. 

LGFVs (local government financing vehicles) are a major source of concealed debt. They can be used to fund infrastructure projects and have an implicit guarantee that repayment will occur. Goldman Sachs Group Inc (NYSE:). LGFV debt rose to 53 trillion Yuan ($8.3 Trillion) in 2013, from 16 trillion yuan. That’s equal to about 52% of China’s gross domestic product and is larger than the amount of official outstanding government debt.

Beijing had been trying to reduce hidden debt for many years, but this year it gave it greater importance after deeming it a national security threat. It’s ordered officials to deal with it by paying down debt or bringing it onto the balance sheets of local authorities. 

An analysis done by Bloomberg revealed that some proceeds from refinancing bonds may be being used to pay off hidden debt in cities and provinces.

©2021 Bloomberg L.P.