What if the first LGFV hard default reprices China's $9tn debt complex?
A first hard LGFV public-bond default reprices the ~$9tn hidden-municipal complex and regional-bank capital that holds it: copper and China internet lead lower, HY blows out, global risk-off via the credit channel. Rhymes with the 2021 developer contagion but is systemically larger, closer in spirit to a US municipal-credit shock. Forward angle: LGFV paper is the core asset of small regional banks, so the real transmission is a bank-recap fear loop Beijing has always pre-empted, making the tail the policy choice to let one fail, not the default mechanics.
Every number ships with its receipt — the odds, the range, the precedents, and a public grade at Reality Check. The statistical machinery that produces it is proprietary.
The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 6–18 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A provincial local-government financing vehicle openly defaults on a public bond, repricing the $9tn LGFV complex and regional bank capital. The trigger decomposes into signed root‑shocks — China growth ▼ · Credit spreads ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.