Local Chinese governments may have more than 20 trillion yuan ($3.2 trillion) of debt, double the official estimates, former Finance Minister said

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

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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