Share

China moves to quell investor concerns

Beijing - China's local governments have published separate audit reports detailing their combined public debt of $3 trillion for the first time ever, to increase transparency and quell investor concerns.

The audits showed China's wealthiest eastern provinces are the most indebted, though repayment burdens are more onerous in poorer areas such as the southwestern province of Guizhou, where the ratio of debt to GDP is the highest, at 79%.

Most governments were shown repaying the vast majority of their debt on time, though a handful, such as Inner Mongolia, have fallen behind, with the portion of loans due but unpaid running as high as 28%.

The burst of transparency follows criticisms from some experts this month that China was not releasing enough information about its local debt troubles, widely regarded by investors as the biggest threat to its $9.4-trillion economy.

"The issues are the most pertinent in the poorer parts of the country," said Louis Kuijs, an economist at RBS in Hong Kong. "Those parts of the country have difficulty repaying their debt."

Spurred by the need to sustain brisk growth in the world's second-biggest economy, Chinese local governments have borrowed heavily over the years to fund non-lucrative public works such as sewage systems and 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.

Audit statements from 30 of China's 31 local regions, provinces and municipalities showed the governments of Jiangsu, Guangdong and Sichuan are the three most indebted, with Jiangsu borrowing the most, at 1.5 trillion yuan. Tibet was the only region that did not release an audit report.

In terms of total debt as a portion of local gross domestic product, however, Guizhou, Chongqing and Yunnan led the league.

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%, followed by Chongqing's 93% and Guizhou's 92%.

Worrisome but not a crisis

China released its most comprehensive audit of local government finances last month in response to mounting investor scepticism that its local debt problems are worse than official numbers suggest.

The report showed debt surging 67% 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 as total government debt is worth around 58% of the economy, far from the levels of Greece and Japan, where public finances are strained.

Fears that China may suffer higher bad debt levels imperilling its financial system were compounded in the past two years by its cooling economy, where growth narrowly missed a 14-year-low forecast in 2013.

The audit reports showed a handful of governments were struggling to repay some loans. Inner Mongolia seemed to be under the most strain, with overdue loans that have not been paid making up 28% of total debt.

The governments in Gansu, Shandong, Shanxi and Jiangxi also reported that unpaid loans accounted for between 8 and 10% of total debt.

Standard & Poor's expects 30% of bank loans to local Chinese governments to sour if borrowers are not aided by other authorities, the rating agency said in a report last week.

"Nonetheless, we don't see an imminent risk of a systemic crisis from local government debt," it said, adding that China's banks are buffered by strong profit growth.


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.85
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders