Local governments in China addicted to debt
March 17, 2014 Leave a comment
Local governments in China addicted to debt
Staff Reporter
2014-03-13
Local governments in China have incurred massive debts to fund huge infrastructural projects, a practice dubbed by scholars as an addiction which may prove difficult to wean, reports the China Youth Daily, the official newspaper of the Communist Youth League of China.
Dong Dasheng, a member of the Chinese People’s Political Consultative Conference and deputy auditor general, told the paper that while total municipal debts, which have swelled to around 18 trillion yuan (US$2.9 trillion), are still manageable, the prospects are worrisome as municipal governments have continued amassing debts in a quest for high GDP growth. They are undertaking grandiose constructions without considering debt repayment, Dong said.
To rein in local debt, the National Audit Office has suggested inclusion of debt risk in the performance evaluation of local officials. In its work report, the State Council has also proposed incorporation of local debts into budget management.
Meanwhile, the city of Jieyang in southern China’s Guangdong province has started carrying out credit ratings for the status of municipal economies, which will be a key reference point in the performance evaluation of local officials, the paper said. The credit rating will be downgraded whenever the scale of debt exceeds a certain level.
Cai Hongbin, a delegate of the National People’s Congress and dean of Peking University’s Guanghua School of Management, said the key for incurring debt is the value of investment projects and repayment capability rather than its scale.
Cai said that to help municipal governments wean off their reliance on debt-fueled spending, Beijing should supervise and audit debt incurrence, evaluate the propriety of municipal debts via a dynamic financial analytical system and credit rating system.
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