Local governments' US$1.65t debt
By Zhang Fengming |
June 28, 2011, Tuesday
|
Print Edition
Print Edition
China's local governments are in 10.7 trillion yuan (US$1.65 trillion) of debt, according to a report by the National Audit Office.
Only 54 county governments out of nearly 2,800 in the country had zero debt, it said.
Some analysts worry that local governments will struggle to repay their loans.
"The property sector is feeling the pinch from government policy tightening, and it takes time for government-invested projects to generate returns," Hua Zhongwei, an analyst with Huachuang Securities in Beijing, said.
To tackle the problem, the audit office said financing vehicles would be "firmly" barred from incurring new debt, while local governments would be allowed to sell bonds, but only with approval from the central government officials.
Releasing its first audit of local government debt, which amounts to 27 percent of the economy, China's chief state auditor, Liu Jiayi, said local government financing vehicles would be cleaned up and regulated depending on the type of debt they hold.
The report said nearly half the debt - 4.97 trillion yuan - was made through financing vehicles.
Bank loans were the source of 80 percent of debt, topping 8.5 trillion yuan as of December 31 last year.
Local governments had set up 6,576 financing vehicles by the end of 2010.
Of them, 148 had reported combined overdue debt of 8 billion yuan, while more than 5 percent of such companies turned to new bank borrowing to repay existing loans.
"Local government financial vehicles are numerous, burdened with big-scale of debt and some are ill-managed with weak capacity to make profits," Liu said.
Premier Wen Jiabao ordered the first audit of local government debt in March, amid concerns that China's 4 trillion yuan stimulus measures to guide economic growth through the global financial crisis could lead to a rebound of bad loans for banks, the main source of local government finance.
More than 40,000 auditors looked at the books of 31 provincial-level governments on the mainland and 2,779 county governments.
Among the debts, local governments had injected more than 1.37 trillion yuan into education, health care and other fields related to people's well-being as of the end of last year.
More than 401.6 billion yuan had been used to promote energy saving and emissions reduction, and ecological enhancement and industrial development.
More than 6.96 trillion yuan had been invested in infrastructure, including transport development, purchasing and reservation of land, as well as energy development.
Of the total 10.7 trillion yuan, nearly 50 percent was taken out as a part of an anti-global recession stimulus package during 2008-2010.
Qu Hongbin, HSBC's chief economist in China, said that although the size of the debt was still manageable, authorities needed to take immediate action to restructure these debts to mitigate the risk of defaults.
"Without real action going toward a restructuring of these debts, banks would face a real risk of defaulting in the coming years," he said.
"We think allowing local governments to issue bonds to be the most feasible option in the near term."
Also yesterday, the auditor said that the Industrial and Commercial Bank of China was among five banks that loaned 58 billion yuan in violation of credit rules.
Irregularities were also found at government bodies including the National Development and Reform Commission, the finance ministry and the railway authority.
Irregularities were also found in the affordable housing program. More than 4,000 homes were allocated to unqualified families while another 4,000 were still empty.
Only 54 county governments out of nearly 2,800 in the country had zero debt, it said.
Some analysts worry that local governments will struggle to repay their loans.
"The property sector is feeling the pinch from government policy tightening, and it takes time for government-invested projects to generate returns," Hua Zhongwei, an analyst with Huachuang Securities in Beijing, said.
To tackle the problem, the audit office said financing vehicles would be "firmly" barred from incurring new debt, while local governments would be allowed to sell bonds, but only with approval from the central government officials.
Releasing its first audit of local government debt, which amounts to 27 percent of the economy, China's chief state auditor, Liu Jiayi, said local government financing vehicles would be cleaned up and regulated depending on the type of debt they hold.
The report said nearly half the debt - 4.97 trillion yuan - was made through financing vehicles.
Bank loans were the source of 80 percent of debt, topping 8.5 trillion yuan as of December 31 last year.
Local governments had set up 6,576 financing vehicles by the end of 2010.
Of them, 148 had reported combined overdue debt of 8 billion yuan, while more than 5 percent of such companies turned to new bank borrowing to repay existing loans.
"Local government financial vehicles are numerous, burdened with big-scale of debt and some are ill-managed with weak capacity to make profits," Liu said.
Premier Wen Jiabao ordered the first audit of local government debt in March, amid concerns that China's 4 trillion yuan stimulus measures to guide economic growth through the global financial crisis could lead to a rebound of bad loans for banks, the main source of local government finance.
More than 40,000 auditors looked at the books of 31 provincial-level governments on the mainland and 2,779 county governments.
Among the debts, local governments had injected more than 1.37 trillion yuan into education, health care and other fields related to people's well-being as of the end of last year.
More than 401.6 billion yuan had been used to promote energy saving and emissions reduction, and ecological enhancement and industrial development.
More than 6.96 trillion yuan had been invested in infrastructure, including transport development, purchasing and reservation of land, as well as energy development.
Of the total 10.7 trillion yuan, nearly 50 percent was taken out as a part of an anti-global recession stimulus package during 2008-2010.
Qu Hongbin, HSBC's chief economist in China, said that although the size of the debt was still manageable, authorities needed to take immediate action to restructure these debts to mitigate the risk of defaults.
"Without real action going toward a restructuring of these debts, banks would face a real risk of defaulting in the coming years," he said.
"We think allowing local governments to issue bonds to be the most feasible option in the near term."
Also yesterday, the auditor said that the Industrial and Commercial Bank of China was among five banks that loaned 58 billion yuan in violation of credit rules.
Irregularities were also found at government bodies including the National Development and Reform Commission, the finance ministry and the railway authority.
Irregularities were also found in the affordable housing program. More than 4,000 homes were allocated to unqualified families while another 4,000 were still empty.
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