China 'not facing a public debt crisis,' says economist Fred Hu

Beijing can easily get its public debt under control, but it would have to be more careful about making promises that it cannot meet without big budgetary support, a veteran Chinese economist has declared.

Fred Hu, who was one of the most senior partners at Goldman Sachs in Asia and is co-founder and chairman of the Beijing-based investment firm Primavera Capital Group, said he did not think the mainland faced a debt crisis in the near term, and he rejected speculation on local government debt as overblown.

Last month the Financial Times, quoting a senior mainland auditor, reported that local government debt had already spun out of control. There have also been concerns about the widespread shadow banking system, of which local government debt accounts for a major portion.

Early this month, JP Morgan's chief China economist, Zhu Haibin, estimated that the mainland's shadow banking system had grown to 36 trillion yuan (HK$45.2 trillion), or nearly 70 per cent of gross domestic product.

Hu, who sits on the advisory committee of the Securities and Futures Commission, said: "In my professional career, every few years someone or other turns up predicting a debt crisis for China. At this point of time, I think China is in good shape and there is no imminent debt crisis in China."

Hu said that the mainland's public debt-to-GDP ratio of up to 65 per cent was moderate compared with the United States, Britain and Japan. The European Union has set its 27 members a debt ceiling of 60 per cent of GDP.