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Chinese local governments have piled a debt equivalent to 1.4 trillion USD

Monday, June 27th 2011 - 15:09 UTC
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Every Chinese citizen at local government level has a debt of 1.200 US dollars Every Chinese citizen at local government level has a debt of 1.200 US dollars

Fresh evidence shows that Chinese local governments commit the same sins as their counterparts in South America and even Spain, where most provinces, states and regional autonomies traditionally pile billions of dollars in debt that following some political arrangement are finally bailed out by the central government.

The first ever audit of China's local government debt revealed it stands at 1.6 trillion US dollars. A comprehensive review of regional spending uncovered the borrowing, equivalent to 1,200 USD per person.

The Chinese audit office said future borrowing will be restricted.

Although China is one of the world's fastest-growing economies, with a huge currency reserve and trade surplus, there are still concerns that such debts could destabilise its economy.

The results, which were presented to the Chinese parliament, showed local Chinese governments, had run up about 10.7 trillion Yuan (1.6tn USD) of debt by the end of 2010.

The figure tallies with a previous and controversial estimate produced by China economist Victor Shih of Northwestern University in the US.

Local governments would in future still be allowed to sell bonds to raise funds, but only with approval from the central government in Beijing.

China's economy is now the second biggest in the world - after the US - but it is not without problems.

Inflation is a key concern, which has forced the price of staple foods, such as pork, to record levels. The government has tried to curb inflation by tightening monetary policy.

Local government debt has long been identified by analysts as another weak spot in China's economy, responsible for a borrowing outbreak that has generated wasteful spending.

About half of this was taken up during the 2008 financial crisis, when the Chinese authorities released a 4 trillion Yuan fiscal stimulus to promote economic growth.

Some of this has been spent on infrastructure projects, such as road and rail, which arguably are vital to sustain orderly economic development, while a lot has gone on property construction.

China's total government debt is 44% of annual economic output, far lower than Germany's 75%, the US at 93% and Japan - one of the world's worst - with 225%.
 

Categories: Economy, International.

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