Local governments 'owe 20tr yuan'

Researcher's estimate is nearly double the figure from the last national audit in 2010

PUBLISHED : Tuesday, 17 September, 2013, 12:00am
UPDATED : Tuesday, 17 September, 2013, 3:38am

The mainland's audit of local government debt may find that provincial and municipal authorities owe more than 20 trillion yuan (HK$25 trillion), Liu Yuhui, a researcher at the Chinese Academy of Social Sciences, said yesterday.

That would be "way higher" than the level of debt at the end of 2010, Liu said at a briefing to announce that the academy and China Credit Rating would jointly develop credit ratings for the country's local governments.

The National Audit Office said in a 2011 report that local authorities owed 10.7 trillion yuan at the end of 2010.

The State Council ordered a nationwide audit of local government debt in July because of concerns that slowing growth may leave some local authorities unable to repay borrowings.

Local governments have sidestepped rules barring them from direct bank loans and selling bonds by setting up thousands of companies to do so instead, raising funds to build roads, bridges and sewage systems.

"Many local governments are under pressure from a capital shortfall, as they need to fund public projects required for urbanisation," Liu said.

The current system did not meet their funding needs, he said, and as a result "the issue of local government debt is in a situation of getting out of control".

Beijing this year expanded trials that began in 2011 to allow provinces and cities to directly sell bonds. The provinces of Jiangsu and Shandong were added to the trial in July, joining the provinces of Zhejiang and Guangdong and the cities of Shanghai and Shenzhen.

The partnership to develop ratings marks a step forward in Beijing's preparations for allowing local governments to sell debt, the academy's vice-president Li Yang said.

China Credit Rating was set up in August 2010 by a body under the People's Bank of China.

In April, former finance minister Xiang Huaicheng also said that local government debt might be more than 20 trillion yuan. Xiang, who was minister from 1998 to 2003, said the figure was based on his personal estimates.

Liu said his debt estimate was partly based on information from a friend at the China Banking Regulatory Commission.

The audit of local debt will be completed this month, according to Vice-Finance Minister Zhu Guangyao.

Finance Minister Lou Jiwei told CCTV this month that the scale of local government debt was controllable and that the pace of borrowing was slowing. He said that while some local governments faced "relatively big" debt problems, the risk of default was "not great".