Chinese Local Government Debt Soaring

China’s local governments may have more than 20 trillion yuan ($3.2 trillion) of debt, former Finance Minister Xiang Huaicheng said, almost double the figure given in a 2011 report by the National Audit Office.

The combined debt of China’s central governments and the nation’s provinces and cities may currently be more than 30 trillion yuan, Xiang, who served as finance minister from 1998 to 2003, said at the Boao Forum for Asia. Local governments had 10.7 trillion yuan of debt at the end of 2010, the auditor said in its report.

“It seems the central government’s debt level is quite transparent, while local government debt isn’t, and therefore it’s not easy to get a clear picture,” Xiang said April 6. He added that since he retired, he’s no longer “within the system” and that his comments on government debt are based on his own personal estimates.

China has sought to curtail borrowing by local governments because of concerns that banks will be saddled with bad debts. The nation’s central bank estimated in 2011 that local governments, which are barred from directly taking bank loans or selling debt, had set up more than 10,000 financing arms to fund the construction of roads, bridges and sewage plants.

Bloomberg

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