Zhejiang investment projects underline China’s local debt crisis

August 28, 2013 Leave a comment

Zhejiang investment projects underline China’s local debt crisis

Staff Reporter

2013-08-28

As many local governments in China have ramped up investment in urbanization and major construction projects, concerns about future moves bloating local government debt have emerged, reports the Guangzhou-based 21st Century Business Herald. In an attempt to rejuvenate the local economy, the Zhejiang provincial government announced a plan earlier this year to launch more than 1,000 major projects over a five year period, with the aim of attracting more than 10 trillion yuan (US$1.6 trillion) in fixed asset investment. Meanwhile, the country’s National Audit Office announced on July 28 the formation of a new administration to audit all local government debt, which is expected to begin operations in early August.China’s local government debt crisis continues to worsen, especially in view of national data showing that 53% of local government debt will be due by the end of the year, when local governments enter a peak period for repaying loans.

Zhejiang province in eastern China is no exception. According to official figures provided by the Zhejiang (including Ningbo) provincial government, government debt was pegged at 279.2 billion yuan (US$45.2 billion) in 2008, 457.9 billion yuan (US$74.3 billion) in 2009, and 587.8 billion yuan (US$95.4 billion) in 2010, representing an annual growth of more than 100 billion yuan (US$16.3 billion).

Data also indicated that local debt levels in some areas of Zhejiang were higher than the national average. The local government in Hangzhou, the provincial capital, reported 83.7 billion yuan (US$13.6 billion) of debt in 2010, which accounted for 87.08% of the total, far higher than the national average of 62.62%.

Among 71 local city and county governments, which have raised funds by issuing 138 bonds worth 148.4 billion yuan (US$24.2 billion), Zhejiang ranked second after issuing 40 bonds and raising 45.4 billion yuan (US$7.4 billion) in funds.

The use of trust products is another channel used by local governments to secure refinancing. Figures showed that the 100 local county governments to incur the most debt have raised more than 22.5 billion yuan (US$3.7 billion) in funds through this method.

However, local government debt continues to rise with the levels being particularly high in 2009 and 2010, mainly due to the launch of a 4 trillion yuan (US$653.3 billion) national investment stimulus project. The project was aimed at boosting economic growth following the 2008 global financial crisis.

Experts said that the most important and serious problem facing China is the existence of hidden debt, which is not reflected in statistics, adding concerns that while debt mounts, some local governments continue to increase investments in major construction projects and urban renewal projects, as well as indulge in speculating in the property market.

Filed under Macro Trends

Unknown's avatarAbout 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.

Leave a comment