c.2013 New York Times News Service
c.2013 New York Times News Service
HONG KONG — The total debt of local governments in China has soared to nearly $3 trillion as the country’s addiction to credit-fueled growth has deepened in recent years, according to the findings of a long-awaited report released Monday by the central auditing agency.
In the report, which is likely to further raise concerns about China’s debt problem, the National Audit Office found that local governments across the country had accumulated 17.89 trillion renminbi ($2.95 trillion) worth of debt obligations as of the end of June. That was an increase of 12.7 percent from December 2012, when local government debt stood at 15.88 trillion renminbi, the report said.
The June figure also represented a dramatic increase of 67 percent from the end of 2010, when an earlier report by the Audit Office estimated local government debt at 10.71 trillion renminbi.
Other reports have estimated local government debt at significantly higher levels, including one issued last week by the Chinese Academy of Social Sciences, a government-linked research institute, which put the figure at about $3.3 trillion.
In the five years since the onset of the global financial crisis, local governments at the provincial, municipal, county and township levels across China have gone on a spending spree, loading up on debt to fund a surge in investment in infrastructure, real estate and other projects.
Analysts have expressed fears that many of these investments may never make enough profit to repay the interest and principal on the debt.
The structure of much of this borrowing has also raised concerns. With a few exceptions for pilot programs, local governments in China are prohibited from directly taking on loans or issuing bonds. Instead, they have set up thousands of special-purpose financing vehicles that borrow on the government’s behalf to fund a given project.
Such financing vehicles had confirmed, probable and potential debt obligations totaling 6.96 trillion renminbi as of June, according to the Audit Office’s report, accounting for nearly 40 percent of all local government debt.
Analysts had for months been anticipating the results of the audit office’s survey. As part of an investigation that began in July, the agency said, it deployed 54,000 auditors across the country, who combed through the books of more than 62,000 government departments and institutions and examined 3.4 million debt instruments related to more than 700,000 projects.
Including financial obligations on the national level, the audit office report found that China’s total government debt stood at 30.27 trillion renminbi at the end of June, up from 27.77 trillion renminbi in December 2012.
Based on findings of the new report, Lu Ting, a China economist at Bank of America’s Merrill Lynch unit, estimated that China’s total public debt stands at 53 percent of gross domestic product. Adding corporate and household obligations lifts the total debt ratio to as much as 190 percent of GDP, he estimated.
China’s overall debt ratio “is neither exceptionally high nor low,” Lu wrote Monday in a research note. Still, he said he was concerned that for the past two years China has been adding debt faster than its economy has been growing.
“We believe the markets and the Chinese government should be alarmed by the rapidly rising leverage, but we do not believe China is on the brink of a debt crisis, especially if the new leaders can take decisive measures to arrest its rising leverage,” Lu wrote.
Under President Xi Jinping, the Chinese leadership has promised to deliver reforms that would be the country’s most ambitious financial overhauls in decades. Xi will head a group that will steer economic and social reforms, Xinhua, the state-run news agency, said Monday.