Local Chinese governments may have more than 20 trillion yuan ($3.2 trillion) of debt, double the official estimates, former Finance Minister said
April 7, 2013 Leave a comment
China Local Debt May Top Estimates, Former Minister Says
Local Chinese governments may have more than 20 trillion yuan ($3.2 trillion) of debt, exceeding the official estimates, former Finance Minister Xiang Huaicheng said at the Boao Forum for Asia.
Xiang’s estimate for provincial and city government borrowings is almost double the 10.7 trillion-yuan figure that the National Audit Office gave for such debt in a 2011 report. The combined debt of China’s central and local governments may currently be more than 30 trillion yuan, said Xiang, who served as finance minister from 1998 to 2003.
“It seems the central government’s debt level is quite transparent, while local government debt isn’t, and therefore it’s not easy to get a clear picture,” Xiang said yesterday. He added that since he retired, he’s no longer “within the system” and that his comments on government debt are based on his own personal estimates.
China has sought to curtail borrowing by local governments because of concerns that banks will be saddled with bad debts. The nation’s central bank estimated in 2011 that local governments, which are barred from directly taking bank loans or selling debt, had set up more than 10,000 financing arms to fund the construction of roads, bridges and sewage plants.Former Premier Wen Jiabao said on March 5 in his annual work report to the National People’s Congress that China will strengthen management of provinces’ and municipalities’ debt. Loans to China’s local government finance vehicles, or LGFVs, currently total about 9.3 trillion yuan, an increase of 2 percent in two years, China Securities Journal reported on March 8, citing bank regulator Shang Fulin.
Debt Alarm
The public doesn’t need to be alarmed by the level of government debt because as a ratio of China’s gross domestic product it is “not particularly high” and because the borrowings are mostly domestic, Xiang said at the forum. There’s also no sign of lending going to “very, very bad” projects or work with “very, very low efficiency,” Xiang said.
Xiang also applauded efforts by new Finance Minister Lou Jiwei in overseeing a study on local government debt levels, saying the review signals that China is taking the issue “very seriously.”
To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net; Henry Sanderson in Beijing at hsanderson@bloomberg.net
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