Chinese rating agencies have upgraded a record number of local government bond issuers even as fiscal income plunged after the coronavirus outbreak, in a move analysts say could lead to a wave of defaults.

The corporate credit ratings of 100 local government financing vehicles, the main lenders behind China’s infrastructure building boom, have been raised since January, according to Wind, a financial data provider. This marks a sharp rise, with just 17 reporting a rise in the previous ten years combined. The shift comes despite local governments reporting a 7.9 per cent drop in revenues in the six months ending in June.

Rating agencies attributed the stronger credit score to LGFVs’ solid financial performance at the end last year and discounted the pandemic because it was unclear what long-term effect it would have on the economy.