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Moody’s Raises Red Flag Over China’s Public Finances

Concerned about China’s policy flip-flops, sputtering manufacturing sector, or swooning equity market? Add to that another source of worries: The patchy state of regional finances.

Moody’s Investors Service notes that China’s regional and local government (RLG) debt pile grew by more than one-third between June 2013 and end-2014, citing official data.

In the 18 months between June 2013 and end-2014, RLG debt rose to 24 trillion yuan ($3.7 trillion) from 17.9 trillion yuan, according to government statistics published over the weekend. Twenty-four trillion yuan is equivalent to 38 percent of the country’s gross domestic product (GDP) in 2014, according to Moody’s.
Moody’s underlying concern is that debt levels are rising against a backdrop of falling revenues, potentially making it more difficult for RLGs to fulfill their repayment obligations.

“Rising debt levels weaken the RLGs’ credit profiles, leaving them exposed to the effects of China’s slowing economy and the related weakening in revenues, against the backdrop of falling land sales,” the ratings agency wrote in a report.

Between January and July 2015, China’s slower growth rates lowered the RLGs’ budget revenue growth to 9 percent from 11 percent during the same period in the previous year.

“Seven provinces experienced falling revenues, 18 saw single-digit revenue growth, while only six achieved double-digit revenue growth,” Moody’s said.

CNBC [1]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [5]

Senior Market Analyst, UK & EMEA at OANDA [6]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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