In theory, the National Development and Reform Commission has banned local government guarantees, but what matters is how the market views the latest developments.

But investors still think chengtou note is a risk-free investment option, betting that local governments would never let them default, analysts said.

The government is trying to reverse that thinking by clarifying the boundaries between government credit and corporate credit. In a landmark document on October 2, the State Council clarified for the first time that LGFVs could not issue new government debt, and the central government would not bail them out.