Renminbi banknotes. (Photo/CFP)
An audit of 36 local governments in China has revealed their total debt amounted to 3.9 trillion yuan (US$627.4 billion) as of last year, up 12.9% from 2010, with some struggling to repay their arrears, China's state auditor says.
The National Audit Office, responsible for overseeing all state finances, recently published the results of the audit, which showed that nine local governments had a debt ratio of more than 100%, with the highest ratio touching 188.95%. If the government guaranteed debt was added, the highest debt ratio would also touch 219.57%, the office said. Meanwhile, a further 13 provincial governments also had a debt ratio of more than 20&, with the highest reaching 60.15%.
Zhou Li, a professor at Tsinghua University's School of Economics and Management in Beijing, said that if national capital rose quicker than the government debt, then local governments would not need to worry about their bloated debts. The government should now set up a fund to handle debt-raising and debt repayment and formulate an efficient repayment plan, Zhou said.
Ding Maozhan, director of the China National School of Administration's research office, said that debt extension by local governments have also become prevalent in China, adding that there were several reasons behind their piling debts.
He said that local governments needed money to launch infrastructure projects, but face a significant imbalance between revenue and outlay. They also take loans from state banks and the cooperation between the government and banks, prompts them to borrow more than they can repay.
Local governments hope to repay the debts by using expected revenue from land or capital provided by investors, while inefficient supervision from the government to manage the sector has attributed to the bloated debts incurred by local governments.
Ding added that local governments using their assets as collateral to guarantee repayment of loans had led some financial institutions to extend illegal loans.
The National Audit Office warned that there are serious issues regarding local governments' debt management, these issues include the rapid growth of debts in cities across the country; debt risks surfacing due to local governments' over reliance on land; and illegal borrowing from companies and other financial channels.