Prosperous Guangzhou Nears Debt Red Line, on the verge of falling short of meeting scheduled debt repayment
August 1, 2013 Leave a comment
07.31.2013 17:56
Guangzhou Nears Debt Red Line, Its Figures Show
Prosperous southern city’s payment obligations for year approach 20 percent of revenue, raising more worries about local government finances
By staff reporter Wang Jing
(Beijing) – One of the most affluent cities in the country has published figures that indicate it is on the verge of falling short of meeting scheduled debt repayment. This comes amid mounting concern that local governments may have trouble paying off the debts they racked up in recent years amid spending intended to stimulate the economy. Guangzhou, the capital of Guangdong Province with a GDP that ranked third last year among all Chinese cities, said on July 30 that it needs to pay loans worth almost 26.1 billion yuan this year. That is 19.37 percent of the city government’s projected income for this year. The internationally accepted red line for this ratio is 20 percent.It also announced figures that show its outstanding loans will exceed 134 billion yuan in December, up 17.3 percent from the end of last year. The city’s forecasted income for this year is 134.7 billion yuan, in which case the ratio of its outstanding loans to income this year will be 99.5 percent. By both its own and international standards this ratio must not exceed 100 percent.
The city will borrow another 38.3 billion yuan to finance the development of infrastructure, government-subsidized housing and urban rail transit, its financial bureau said.
A closer look at the sources of funding for scheduled loan repayment this year shows that about 7.7 billion yuan, or roughly 20 percent, of the new loans to be taken out this year will be used to repay maturing debt.
The problem is that for years to come it will be more difficult for Guangzhou to take out bank loans partly because of its precarious financial condition, a source close to the financial bureau said.
Guangzhou is not alone in feeling this debt pressure. The results of an audit of 36 local governments published in June found 10 of them with outstanding debt exceeding last year’s income.
The ratios of required debt repayment against income for 14 local governments were above the 20 percent red line last year.
The National Audit Office has said it will reexamine government debt, a survey that is to conclude before October 1. The results will be an update of its last audit, which put total government debt nationwide at 10.7 trillion yuan by the end of 2010.
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