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China Audit Report: Local Debt Ratio Up to 189Pct in Some Cities

06-28 12:37 Caijing
Local governments debts amounted to 3.85 trillion yuan in 36 regions in 18 provinces at the end of 2012, up 12.94%, or 441 billion from that in 2010.

Key findings of the report:

1) Outstanding debts in 36 local governments were close to 3.85 trillion yuan at the end of 2012, up 12.94, or 441 billion from that in 2010. Bank loans accounted for 78.07 percent.
2) Four provinces and capital cities in eight provinces saw their debt growth rate at over 20 percent, with the highest at 65 percent, in 2012.
3) 55 percent of outstanding local debts in four provinces and 11 provincial capitals were pledged to be repaid with land revenue, although the latter was far from enough to cover the detbs.
4) Local authorities had illegally guaranteed 81.8 billion yuan in local government debts in 2011 and 2012.
5) Branch offices of 27 lenders provided 28.4 billion in loans to unqualified projects; As much as 18.4 billion yuan of loans were diverted for other uses, with 2.2 billion flowing to RMB financial market to be paid to private borrowing or repackaged as new loans.

Local governments are struggling to repay their debts with some overly independent on land revenue, according to findings in the latest auditing report.

The report, based on auditing results in 36 regions in 18 provinces, shows that local governments debts amounted to 3.85 trillion yuan in those areas at the end of 2012, up 12.94%, or 441 billion from that in 2010.

As a ratio to GDP, local governments in 7 provincial capitals saw their debts more than doubled in 2010, with the highest debt ratio at 189 percent, said the National Audit Office.

To make it worse, some of those governments were excessively reliant on land sales in repaying debt, the central audit office said. Governments in four provinces, and 17 provincial capitals pledged to use land sales, which had long served as a major local revenue source but staggered maid Beijing's attempts to cool the property, to pay over half of their debts.

The principal and the payment of interests in 2012 for those debts, however, had already grown to 1.25 times of their disposable land revenues, it added.

The central audit report also warned of irregularities in local financing. "Disguised financing arrangements, via trusts, built-transfers, and illegal fund raising, are prominent in some regions," a National Audit Office official told media.

"It is hard to oversee those financing, whose costs are well above bank borrowing, posing new potential threats" to the country's financial system, he said.

Other irregularities include illegal guarantee by local governments to unqualified projects, and embezzlements, according to the report.

The financing chaos revealed by audit should "demand high attention," he added, "Beijing shall further clean up local financial vehicles."

Beijing published its first audit of regional finances in 2011, showing that Chinese local governments owed 10.7 trillion yuan in debts.

But according to the official with the National Audit Office, the new number of local debts could not be deduced from the audit, which covers only some of the debt-laden local governments.


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