China debt: Beijing names and shames costly local government projects in bid to curb debt
- Beijing has put the spotlight on eight wasteful local government projects as part of its ongoing campaign to reduce debt
- The State Council urged local governments to ‘strictly follow fiscal discipline’ and ‘condense’ construction spending
Beijing has named and shamed eight local government projects in four western provinces as part of its push to rein in mounting local government debt and excessive borrowing in the property sector.
The State Council, the country’s cabinet, rebuked local officials over their loose debt policies and told them to “strictly follow fiscal discipline”. It also warned it would step up scrutiny of local government infrastructure spending and projects.
“Highly indebted regions, except necessary expenditure on livelihood and government operations, must greatly condense their construction spending and raise funds to tackle debt risks,” the State Council said in a circular released on Wednesday.
“Local governments must fully consider their development stage and fiscal endurance, and strictly implement decision-making and approval processes.”
The State Council named three projects in the northwestern province of Qinghai, three in Ningxia, and one each in the southwestern provinces of Guizhou and Yunnan.
One of the projects mentioned was the Qinghai International Convention Centre in Xining, the capital of Qinghai province.
Construction on the project started in July 2019 even though its private developers had not secured funding, which eventually forced local governments to bail them out.
The government of Zunyi in Guizhou province was also called out for spending 562 million yuan (US$87.8 million) of land sales revenue to build a convention centre to accommodate the local session of the People’s Congress.
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China’s 31 provincial-level jurisdictions had a combined debt of 28.5 trillion yuan by the end of August, according to data from the Ministry of Finance.
However, these projects might just be the tip of the iceberg and local liabilities, despite repeated orders from Beijing for deleveraging.
It is now a key period for China to tackle local debt problems
“It is now a key period for China to tackle local debt problems,” said Wen Laicheng, a professor of fiscal science at Central University of Finance and Economics.
Beijing is paying particular attention to regions whose outstanding debt surpassed their annual fiscal strength.
Guizhou was ranked No 2 among China’s provincial-level jurisdictions in terms of debt-to-fiscal revenue ratio, with a reading of 157 per cent last year and 148.4 per cent in 2019, according to a research from China Bond Rating released earlier this year.
Qinghai was ranked in fifth place, with a ratio of 127.4 per cent in 2020, while Yunnan and Ningxia had ratios of 122.3 per cent and 119.9 per cent, respectively.
“For those regions, their priority should be reducing spending and repaying debt first,” Wen said.
