China Records Sharp Rise in Local Government Debt Levels
China’s latest national audit reveals that local government debt hit 17.9 trillion yuan (CNY) – the equivalent of around US$3 trillion – at the end of June 2013, a 70% rise in less than three years from the figure of CNY10.7 trillion recorded at the end of 2010.
China’s National Audit Office (NAO), which released the data, commented that the debt levels were still controllable-echoing the statements made by top Communist Party officials over recent months. However, the NAO report also called on local leaders to curb the rapid increase amid growing concerns that rising debt could undermine China’s economic growth. It warned that debt is continuing to rise relatively quickly and in addition to tightening controls, local leaders needed to create an ‘emergency response mechanism’ for their stock of debt.
With central government borrowing added in, China’s total official debt stood at CNY30.3 trillion (US$4.9 trillion) as of June 30, the audit report said. Much of the figure reflects spending on new airports and other public works as part of Beijing’s stimulus that helped China rebound quickly from the 2008 financial crisis.
The audit was ordered in July by the new government under president Xi Jinping, which took power in March. In a statement last month following an annual planning meeting, ruling party leaders promised to make resolving local government debts an ‘important task’.
The report also cited problems such as high debts for local industry, a heavy reliance by local leaders on land sales to raise revenue and improper activities surrounding some government debt. Auditors had found some CNY13.5bn improperly invested in stocks and real estate or spent on unauthorized construction. According to the report, 69 people were implicated although it gave no further details.
While Western governments borrowed directly to pay for their stimulus, China’s debt was concealed temporarily on the books of state banks. Analysts have warned the rapid increase in lending could lead to a rise in unpaid loans.
Local governments also borrow to pay for schools and other social programmes that are promised but not paid for by the central government. The total debt burden was obscured as they created separate investment agencies to pay for infrastructure projects. Some have encountered problems in raising revenues to repay lenders.