Audit bureau: Shanghai’s direct debt is repayable
Print Edition
The Shanghai government had taken direct debt of 519.4 billion yuan (US$85.7 billion) by the end of last June, which was about a quarter of the city’s GDP, but auditors said yesterday the risk from the debt was manageable.
The government’s total debt, including direct and budgetary debt, and contingent liabilities, amounted to 845.6 billion yuan by June, the Shanghai Audit Bureau said in its first disclosure of local government debt.
“Considering the economic development of Shanghai, the status quo of government debt, and the relationship between assets and liabilities, the city’s debt risks are controllable overall,” the statement said.
Of the 502.3 billion yuan direct debt spent, 93.6 percent was channeled into public welfare projects such as urban construction, transportation system development, affordable housing, and the city’s ecologic system.
“Spending from the debt ensured the capital needed for Shanghai’s economic and social development,” the statement said. “It has also generated large quantity of high-quality assets for the government, most of which have operational income to help repay the debt.”
Bureau spokesman Jiang Xiaomin said among others, the debt had been used to build the Hongqiao transportation hub, reconstruct the Bund area, extend the city’s Metro line from 263 kilometers in 2007 to 468 kilometers in 2012, renovate shabby districts, and replenish capital after tolls were scrapped on some highways.
Debt payment is supported by Shanghai’s stable economic growth and government income as the city recorded an annual GDP growth of 8.8 percent, and 12.2 percent of fiscal revenue increase between 2007 and 2012, Jiang said.
But the report also pointed out that with the growth of direct debt being relatively quick and debt pressure high on some areas, the government was relying too much on land sales to repay the debt, leading to illegal financing in some areas.
Direct debts of four districts and nine towns exceeded their annual revenues by the end of 2012, and some government departments in Zhabei and Jinshan districts were found illegally providing guarantees for loans running up to 861 million yuan, the report said.
The city has taken measures to clean up local government financing vehicles, set up reserve requirement for repaying the debt, and improve financing vehicles’ solvency by raising registered capital and injecting high quality assets, the report said.
The bureau said banks were financing 71 percent of the government’s direct debt and 76 percent of the government’s total liabilities.
Shanghai joined Sichuan, Jiangsu, Guangdong and Zhejiang provinces and the Guangxi Zhuang Autonomous Region that published their debt reports yesterday. All the reports said the debts were manageable.
The reports follow the National Audit Office’s report of government debt in China, released on December 30, 2013, showing sizable growth in China’s central and local government debt.
Total debt of local governments was 17.9 trillion yuan in June 2013, 67 percent higher than in December 2010. The NAO’s latest survey broadened its scope from three years ago to include town-level government debt, but it only amounted to 0.4 trillion yuan.
Moody’s Investors Service said the findings were negative for China’s credit rating as the sizable accumulation of local government debts was a burden and carries risks for central government finances.
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