China’s National Audit Office (NAO) announced on Monday that, by the end of June 2013, local government debt had increased to 17.9 trillion yuan, soaring 67 percent over the figure for three years ago.
According to the NAO’s last figure, for the end of 2010, the total debt of local governments in China was 10.7 trillion yuan. China’s local governments cannot borrow directly from banks. Their debt is built up mainly by establishing some financial entities and using these entities to borrow money for infrastructure projects. Government debt also includes financial guarantees for some projects.
If the debt of the central government is included, the Chinese government’s overall debt is 30.3 trillion yuan, accounting for 53.3 percent of GDP. Some analysts worry that the economic slowdown could lead to an increase in bad debts, thus putting pressure on large state-owned banks. The NAO report also points to an over-reliance on land related fiscal revenue as a cause of the rapid increase in local government debts.
Source: Voice of America, December 30, 2013