Progress as China gives details of public debt

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Reuters Beijing

China’s local governments have, for the first time, published separate audit reports detailing their combined public debt of $3 trillion (R33 trillion), to increase transparency and quell investor concerns.

Audit statements from 30 of China’s 31 local regions, provinces and municipalities show China’s wealthiest eastern provinces are the most indebted, although repayment burdens are more onerous in poorer areas such as the southwestern province of Guizhou, where the ratio of debt to gross regional product is the highest, at 79 percent.

Tibet was the only region that did not release a report.

Most governments are repaying the vast majority of their debt on time, although a handful have fallen behind. For example, Inner Mongolia’s overdue loans make up 28 percent of total debt.

“The issues are the most pertinent in the poorer parts of the country,” said Louis Kuijs, an economist at Royal Bank of Scotland in Hong Kong. “Those parts of the country have difficulty repaying their debt.”

The Beijing local government was at the top of the table in terms of money borrowed as a percentage of annual fiscal income at 100 percent, followed by Chongqing’s 93 percent and Guizhou’s 92 percent.

The burst of transparency follows criticisms from some experts this month that China was not releasing enough information about its local debt troubles, which are widely regarded by investors as the biggest threat to its economy.

Spurred by the need to sustain brisk growth, Chinese local governments have borrowed heavily to fund public works such as railway lines.

Though some analysts welcome the public works and say China is right to build its infrastructure now before costs escalate as its economy grows, others worry that rapid investment has generated waste and sowed the seeds for bad loans.

Last month China released its most comprehensive audit of local government finances in response to mounting investor scepticism that its local debt problems are worse than official numbers suggest. The report from the National Audit Office showed debt surged 67 percent in two years – far more than officials had publicly admitted.

But analysts said it did not suggest China was on the verge of a crisis because total government debt was equal to about 58 percent of the economy, which was far below the levels of Greece and Japan.

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