Worried lawmakers demand clarity on China’s local government debt woes

Despite Beijing’s assurances that the situation is under control,‘there’s no clear answer on the actual number of hidden debts,’ lawmakers complain

PUBLISHED : Sunday, 30 July, 2017, 2:02pm
UPDATED : Sunday, 30 July, 2017, 11:07pm

Chinese lawmakers have ­demanded finance officials give a clearer picture of the country’s ­local government debt woes.

The call was detailed in minutes released last week of a session of the National People’s Congress Standing Committee in June.

While the central government has repeatedly assured the world that local government debt risks are under control, some 50 lawmakers urged vice-finance minister Zhang Shaochun and Hu Zejun, the country’s chief auditor, to pay attention to risks stemming from direct and indirect borrowing by local authorities.

“There are new ways of providing illegal and irregular guarantees, and there’s no clear answer to the actual number of hidden debts,” lawmakers were quoted as saying. “We can’t overlook that this may lead to systemic risks.”

On the surface, local governments had amassed 15.3 trillion yuan (US$2.27trillion) in outstanding debt at the end of last year, below the 17.2 trillion yuan approved by the legislature.

The combined central and ­local government debt was 27 trillion yuan, representing only 36.7 per cent of the country’s gross ­domestic product – compared to the US’ gross federal debt to GDP of 106.1 per cent last year.

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On Friday vice-finance minister Liu Wei said local government debt had risen to 15.8 trillion yuan, but insisted it was still ­within a safe range.

“Government debt risks are controllable – we say that with reason and confidence,” Liu said.

But the big concern is that the official figure does not give a true picture of the debt pile because local governments have found ways to disguise debts as corporate borrowings or credit guarantees.

Wang Zhijun, from the Office of the Central Leading Group for Financial and Economic Affairs, said on Thursday that local government debt was a “grey rhino” economic risk, meaning it was big enough to derail growth.

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International investors are also concerned about the debt numbers. Moody’s downgraded China’s sovereign rating in May, citing debt as a reason.

Top leaders decided at the national financial work conference earlier this month that local government officials must be held permanently accountable for debt they incur.

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Zhao Quanhou, a senior researcher with the Chinese Academy of Fiscal Science, said local debt was expanding because there was “demand for improvement of economic conditions” and growth was a way for local officials to gain promotions. He said Beijing’s repeated efforts to rein in debt was a game of cat and mouse.

“These actions only scratch the surface,” Zhao said.