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Local debt expands rapidly but risks doable
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The speed at which China’s local government debt has grown is alarming and asset quality is causing a concern in some areas although the risks of the Chinese government’s total debt was manageable, the top auditor said yesterday.
The local government debt stood at 17.9 trillion yuan (US$2.95 trillion) at the end of June, the National Audit Office said in a statement. Comparatively, the local government debt has grown nearly 20 percent annually in the past two and a half years, the office said.
Local governments chalked up a 10.7 trillion yuan debt by the end of 2010, the office said in 2011.
Of the local governments’ 17.9 trillion yuan debt, 10.9 trillion was direct debt of the governments, and the rest was guaranteed by the governments, the office said.
The figures are in line with market expectations but analysts called for further action to control the debt.
Wang Tao, chief economist with UBS Securities, said the policymakers should consider whether some of the projects are reasonable and whether officials have been responsible.
She said that to curb local government debt from excessive expansion, the governments should control fiscal spending, enhance budget management, and allow the people’s congress to inspect government spending.
The central government should also cut pursuit for economic growth to prevent local governments from excess fundraising, she said.
Last week, the Chinese Academy of Social Sciences estimated local government debt to be nearly 20 trillion yuan by the end of 2012 and the total debt of central and local governments at nearly 28 trillion yuan.
China should take measures to slow down the growth in debt even as the risks are manageable, the CASS said.
China’s total government debt, including local and central government’s direct debt and those guaranteed by the governments, stood at 30.7 trillion yuan by the end of June, the NAO report said. That accounted for 55 percent of China’s economy, lower than European countries and Japan.
The office said the debts of three provinces, 99 cities, 195 counties and 3,465 towns overtook their gross domestic product by the end of 2012.
Chen Chenzhao, the office’s spokesman, said the risks of China’s government debts are controllable as the size is within a safety range set by the International Monetary Fund.
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