Local governments borrowed for years to create jobs and keep factories humming. Now China’s economy is slowing to its weakest pace in nearly three decades, but Beijing has kept the lending spigots tight to quell its debt problems. 

In response, a growing number of Chinese cities are raising money using hospitals, schools and other institutions. Often they use complicated financial arrangements, like lease agreements or trusts, that stay a step ahead of regulators in Beijing. 

“Whether it is a financial lease or trust, they are just all tools for local governments to borrow,” said Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong. “Officials stop one today, and they come up with another tool tomorrow.”

“That’s why China has been talking about curbing local government debts for many years and it’s still not solved,” Mr. Chen said.

Increasingly these deals are going sour, as they did in Ruzhou, and the loans are going unpaid. Lenders have accused three of Ruzhou’s hospitals and three investment funds tied to the city of not paying back their debts.