China’s provinces fall deeper into local government debt mire, study finds
- Only Shaanxi reported a decline in debt ratio by June 2020, according to joint review
- Nine provinces, including Guizhou and Inner Mongolia, had a ratio of above 100 per cent
The debt problem for all but one Chinese provinces is worsening as local authorities continue to rely on borrowings to finance big-ticket spending programmes, according to a joint review of local government finances.
The review revealed that with the exception of the hinterland province of Shaanxi, debt ratio, measured as outstanding debt to local GDP, rose in 30 of 31 mainland provinces as of the end of June 2020.
The assessment was released in the Local Government Bond Blue Book 2021, jointly published by the National Debt Association of China, a society under the Ministry of Finance, and China Chengxin International Credit Rating, the country’s biggest credit rating firm.
In all, 23 of the provincial areas had a fiscal balance ratio – a measure of debt repayment ability – below 50 per cent. The ratio is calculated as the share of budget revenues to budget expenditure. The results mean that most provinces are relying on transfer payments from Beijing or new debt to maintain fiscal balance.
Chinese regional and local governments sold 5.7 trillion yuan (US$886 billion) worth of bonds in the first nine months of 2020, Moody’s Investors Service said in a recent report. That amounted to nearly 36 per cent higher than the same period last year.
Their outstanding debt totaled 25.6 trillion yuan at the end of September and was expected to reach 26 trillion yuan by the end of 2020, pushing their average debt burden close to 100 per cent of revenue, analysts led by Shanghai-based Amanda Du wrote in the report.