China’s debt-ridden Guizhou faces reckoning after years of splashing out on pricey projects
- Beyond its brilliant bridges and vast roads, Guizhou province has one of the nation’s worst per capita income levels, along with debt pressure that could weigh it down for years
- But Beijing is told that ‘development pressures’ of the past are being rectified and infrastructure investments have been downsized
After more than a decade, a rapid and debt-inducing construction spree in one of China’s poorest regions appears to be significantly abating. But analysts suggest it will take years for Guizhou province to reduce its burden amid a series of controversies surrounding how local governments continue to handle their financial problems.
The southwestern province, known for its undulating hills and mountains, also boasts some of the world’s most spectacular bridges and roads. It is also among the most indebted regions, while its per capita income ranks among the worst when compared with other Chinese provinces.
The Guizhou government’s outstanding debt in 2023 accounted for 72 per cent of the region’s gross domestic product (GDP), above the 60 per cent standard set by the central government, according to CSCI Pengyuan, a rating agency in China.
“There were indeed some development pressures in the past, but with the help of the central government and coordination from eastern and western regions, we have resolved [debt] difficulties to a considerable extent,” said Zhao Ziyi, a Guizhou deputy to the National People’s Congress (NPC) and dean at the Guizhou University of Finance and Economics, on the sidelines of this week’s annual meeting of the national legislature in Beijing.
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Zhao said that investment remains part of a range of tools to develop the provincial economy, but consumption has “gradually” become a driver.
Meanwhile, Guizhou has made strides in the advancement of smart agricultural models, improving its crop-growing efficiency, according to state media reports. And what’s more, Zhao said, the service sector in Guizhou has undergone “tremendous” changes over the years. Investments related to transport have resulted in more people coming to visit or live in the region, she said.
“The role of investment in the entire economy has been gradually [replaced] by others. We will work together to overcome this difficulty,” she added.
The Guizhou government announced on February 23 that it had allocated 319.74 billion yuan (US$44.5 billion) for infrastructure projects this year, down 60 per cent from 800.39 billion yuan in 2023. The average annual expenditure for large-scale projects was roughly 770 billion yuan between 2017 and 2023 for Guizhou, based on government data.
The downsizing of investments by the Guizhou government came amid Beijing’s call for more efforts to resolve local debt problems while tightening scrutiny of local government financing vehicles (LGFVs) – platforms used by local governments to borrow off-budget to fund infrastructure projects.
Guizhou is the top issuer of “special refinancing bonds”, debt with lower interest payments aimed at replacing the higher-yielding LGFV debt, GF Securities said, noting that after Beijing approved the sales of such bonds in October, Guizhou had sold 258.8 billion yuan worth of such debt by February 23.
Although fixed-asset investments in Guizhou helped the region speed up its gross domestic product (GDP) growth to a top-three level in China between 2011 and 2020, the province failed to build profitable new industries. The traditional manufacturing of baijiu, a distilled Chinese liquor, has long helped support tax-revenue growth for the local government.
Meanwhile, Guizhou’s debt pressure kept mounting, with more than 100 LGFV defaults in private transactions between 2018 and 2022, according to estimates by GF Securities, triggering serious concerns over Guizhou’s ability to repay what it had borrowed.
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The cash-strapped province has also been caught up in a number of controversies stemming from its financial problems, including a 20-year loan rollover of an LGFV in 2023 that saw the banking sector take the brunt of the local government debt crisis. A former party official of Guiyang, the capital of Guizhou, admitted to spending recklessly on large-scale tourism projects while in office in a state media documentary in January, saying he believed he would not be held accountable for it.
Xia Xiaoqing, a lawyer with the Jiangxi Xunbo Law Firm, said there are always risks associated with local government contracts, even though they often come with guarantees.
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“However, government projects are managed by specific officials,” Xia said in a commentary posted on the law firm’s social media account on WeChat on Tuesday. “Therefore, the risks of government projects are more human risks. We also hope government project management will be more standardised”, in terms of following the rule of law.
China’s finance minister, Lan Foan, pledged on Wednesday to improve the management of local government debt, and to gradually resolve the associated risks through “high-quality development”.
Some analysts do not expect Guizhou’s debt pressure to go away any time soon. This year, Guizhou will see a total of 74.23 billion yuan worth of LGFV debt maturing, or a third of its outstanding LGFV debt, and the ratio will further rise to 37.1 per cent in 2025, according to estimates by GF Securities.
“The debt formed by Guizhou’s investment-driven development model in the past 10 years will take considerable time to resolve, and the impact of the pandemic on its tourism industry will also take time to repair,” GF Securities said in a note on February 29.
