“Many cities will become like Hegang in a few years’ time,” said Houze Song, an economist at US think tank MacroPolo, noting that China’s aging and shrinking population means many cities don’t have the workforce to sustain faster economic growth and tax revenue.
 
“The central government may be able to keep things stable in the short term by asking banks to roll over local governments’ debt,” Song said. Without loan extensions, he added, “the reality is that over two thirds of the localities won’t be able to repay their debt on time.” 

In Heilongjiang province, where Hegang is located, bond investors are already wary of the risks. The province’s outstanding seven-year bond had an average yield of 3.53%, 18.8 basis points higher than the average nationwide, ranking it among the top four most expensive.

Eoin Treacy's view

The big question for everyone is just how much pain is the Chinese government willing to tolerate? The modest official debt to gdp ratio posted by the government does not include the debt owed by states, counties, or cities; all of which have a quasi-guarantee from the central government. When those debts are included China has one of the highest debt burdens of any major economy.