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NAO concern as local debt balloons
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China’s local government debt may have doubled in the past two years to 19 trillion yuan (US$3.1 trillion), underscoring the urgent need to tackle the issue, according to the National Audit Office.
Debts raised through new channels such as trust and delayed payment have jumped significantly from 2011, and more counties have opened up their own financing vehicles to raise funds, Economic Information Daily reported yesterday citing an unidentified official from the NAO.
“The audit results are nearly double from our findings two years ago, and such growth is really very fast,” the official said. “Funds raised through more concealed channels have expanded greatly.”
More local governments are accumulating debt through a Build-Transfer mode, wherein a private entity will build a project and collect payment from the government in the long term to cover the cost, the official said.
An NAO report said asset quality in some regions is poor and cannot be used to repay debts, the newspaper said.
The office has almost completed a two-month nationwide audit of local government debt aiming to clarify the worrisome debt situation. The latest available data date back to a 2011 NAO report that pinned local government debt at 10.7 trillion yuan at the end of 2010.
A report by Nomura said on Thursday that financing vehicles used by local governments to raise cash had created 19 trillion yuan in debt by the end of last year, posing a major risk to the economy.
“While local government debt-to-GDP ratio may appear manageable at the national level, the debt-to-fiscal revenue ratio suggests that such debt remains a heavy burden for local governments,” said Zhang Zhiwei, chief China economist at Nomura.
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