China’s local government debt at ‘boiling point’ as Beijing seeks to boost growth, says renowned academic
- Regional authorities have issued US$163.8 billion in debt since the start of 2019, four times that of year-earlier period
- But China will not be centre of next crisis as the financial system is ‘healthy’, says Renmin University vice-president professor Wu Xiaoqiu
China is unlikely to be the centre for the next financial crisis but the increase in local government debt as Beijing allows more borrowings to bolster growth will be a major risk, warned a renowned academic in capital markets in the country.
Professor Wu Xiaoqiu, vice-president of Renmin University of China, said the level of local government debt was close to a “boiling point”.
To arrest a slowing economy, the central government is not only allowing the regions to sell more debt to fund local development, but also granting permission to a few places to sell these bonds to retail investors in a pilot scheme that could further unlock billions of dollars in savings.
Wu said while there were risks in the level of corporate loans, they were not as serious as those for local government debt.
If local government debt continues to increase in the same way, the cost of debt will exceed the fiscal income local governments receives – this means it will be difficult to sustain
“High debt needs high fiscal revenue and high economic growth, but China’s economic growth has slowed from 10 per cent to 6 per cent. If local government debt continues to increase in the same way, the cost of debt will exceed the fiscal income local governments receives – this means it will be difficult to sustain,” said Wu said at the Boao Forum for Asia on Tuesday.
