National Audit Office Concerned About Debt

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Nov. 19 – China’s National Audit Office has raised concerns about the level of debt incurred by local governments in China.

In comments made by Jing Ulrich, managing director of JP Morgan China, this could lead to a rise in the amount of non-performing loans in China’s banking sector.

Some 18 provinces, 16 cities and 36 counties across China recorded government debt rising 59.4 percent last year to a total of RMB2.70 trillion (US$405 billion). Of these, 7 provinces, 10 cities and 14 counties had a debt ratio in excess of 100 percent, and in the highest instance, of 364.77 percent. Debt has climbed in China due to the massive infrastructure spending plan introduced by the government as part of its stimulus plan.

Debt repayment in China is typically handled by generating revenues from land sales, however, Beijing has been trying to dampen the property sector and has recently ordered banks to suspend making loans for property purchases.

Debt has also been made available to local state-owned enterprises. In the case of the recent Shanghai apartment block fire, the contractor responsible for carrying out the work that led to the blaze that killed 53 people earlier this week had won 35 of the 36 tendered contracts offered by the Jing’an government over the past three years, suggesting that government money was being poured into SOEs with links to local officials and well positioned individuals. Of the total debt, about 23.65 percent also contained additional hidden risks, the audit office said.