Growing debt burden in mainland provinces causes concern

The debt burden of some provinces on the mainland is becoming "worrisome" as they face the double whammy of slowing fiscal revenue and tightening bank loans, warn credit rating agencies.

The debts of four provinces - Hubei, Jilin, Hainan and Hunan - are "fairly high" and may result in "high financial risks", said Terry Gao, an associate director at Fitch yesterday.

Local authorities at the moment hold far less cash than they need to repay loans, said Moody's analyst Katie Chan. She warned of a high rollover rate at mainland banks for local-government loans that will mature this year as local financing vehicles are struggling to pay back.

The debt-to-fiscal-revenue ratio for the central province of Hubei, for example, reached 181 per cent in 2010, according to Fitch. That is on par with countries known to have high debt levels, such as Britain and France. China's overall debt-to-revenue ratio is 165 per cent.

"The whole area is very opaque, so it is difficult to know what the outcome would be. But ... there is a lot of these debts being built up and we expect the financial pressure on local governments to increase as more debt piles up this year," said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch.

(Please click on image below to enlarge table)