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A so-called local government financing vehicle has played a big part in creating the massive development. Chongqing indirectly owns the entire shares of this LGFV. As is typical of these entities, it raises funds by issuing bonds. Its prospectus includes a list of properties owned by the business.

What the L?

Local authorities are rolling the dice because of China's flaccid economy. Earlier in May, an interview appeared in the People's Daily, an official Chinese Communist Party newspaper. In it, an anonymous high-profile figure insisted the Chinese economy is seeing a moderate, L-shaped recovery, rather than a sudden, V-shaped rebound. The official argued that monetary easing should be avoided as a stimulus measure.

It is true that structural reforms are essential for sustained, long-term growth in China. But the economy is so fragile that it cannot maintain its pace of growth without additional public spending. For local officials, whose careers depend on strong economic numbers in their jurisdictions, expanding the balance sheets of publicly owned companies is an easier choice than tackling long-term challenges.

Government intervention has roiled financial markets as well. Stock prices are about half as high as they were in June 2015. Hoping to make up lost ground quickly, authorities briefly tightened rules on margin trading and poured public money into the market. To stave off what it sees as a glut of new shares, the government has approved fewer than half as many initial public offerings this year as last.

Rather than allowing the market to recover gradually on its own, authorities have stepped in frequently and clumsily. Disaster resulted as investors fled. They have yet to return: On Friday, trading volume on the Shanghai Stock Exchange was in the 120 billion yuan ($18.2 billion) range, about 10% of its peak of 1.3 trillion yuan in June of last year.

Recovery in the equity market, as in the economy as a whole, will be slow and painful.□

YUSHO CHO , Nikkei staff writer

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