China's Local Debt Likely to Hit CNY20trl: State Researcher09-18 15:42 Caijing
The pile of China's debt in local governments may hit 20 trillion yuan now, doubling from that in 2010, a government researcher said.
The debt level overall is still "controllable", said Zhu Baoliang, chief economist at the economic projections department at the state-run State information Center. But some "individual governments" could face debt problems, he added, referring to a Detroit-like crisis.
Zhu made the remarks at a summit in Tianjin on Tuesday. He said at the summit that one key reason for China bears is that China has too much a debt ratio, and that the current money supply measured in M2 is more than twice of GDP.
Corporate, local governments and property developers are among the major borrowers in China who are struggling to pay off, according to the researcher.
Excess production capacity in some industries fueled by investments, often on the behest of the government, have led to bad loans in banks, he said. Meanwhile, local governments have been reckless in borrowing to finance for infrastructure construction, via special investment companies set up to skirt rules barring them from borrowing directly from banks.
"Based on our rough calculations, currently local governments owed some 20 trillion yuan, compared with an estimated 10.7 trillion in 2010," Zhu said.
"Although China's overall debt is controllable, problems -like the one that collapsed the city of Detroit- could arise in some individual governments."
Zhu suggested that a major approach to resolving local government debt is to reform China's fiscal system by, for example, allowing local governments to issue their own bonds directly. Currently, some better-managed provinces and major cities have already been allowed to offer bonds under a trial program.
The securitization of assets could also deal with some of the problems arising from the debt piles, Zhu added.
China's national audit bureau started the second review of local borrowing levels on August 1, in a way comprehensive enough to cover all different levels of the administration. A result of the audit has yet to be released.
In 2011, the National Audit Office found 10.7 trillion yuan in debt accumulated by 31 local governments and municipal cities at the end of 2010.
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