China's local government debt has soared 70 percent over the past three years, according to an official audit Monday, which called on local leaders to curb the rapid increase.
China’s local government debt has soared 70 percent over the past three years, according to an official audit Monday, which called on local leaders to curb the rapid increase.
The report follows warnings rising debt could endanger China’s economic growth. Communist Party leaders have pledged to make getting debts under control an official priority.
Local governments owe directly or have guaranteed 17.7 trillion yuan ($2.9 trillion) in debts as of June, the National Audit Office reported. That was up from Y10.7 trillion ($1.7 trillion) at the end of 2010.
Debt still is “rising relatively fast,” the report said. It said local leaders need to tighten control over borrowing and create an “emergency response mechanism” for their stock of debt.
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The Chinese central bank has tried to allay concern, saying debt risks are manageable. But private sector economists say the rapid increase is dangerous for the financial system.
The audit was ordered in July by the new government under President Xi Jinping, which took power in March.
In a statement last month following an annual planning meeting, ruling party leaders promised to make resolving local government debts an “important task.”
Chinese leaders are in the midst of a marathon effort to reduce reliance on trade and debt-fueled investment to drive economic growth. They are trying to shift to more sustainable growth supported by domestic consumption. But household spending is rising more slowly than planned, which has forced Beijing to prop up growth with spending on railway construction and other projects.
With central government borrowing added in, China’s total official debt stood at 30.3 trillion yuan ($4.9 trillion) as of June 30, the audit report said.
A big share of the debt stems from spending on new airports and other public works as part of Beijing’s stimulus that helped China rebound quickly from the 2008 financial crisis.
While Western governments borrowed directly to pay for their stimulus, China’s debt was concealed temporarily on the books of state banks. Analysts have warned the rapid increase in lending could lead to a rise in unpaid loans.
Local governments also borrow to pay for schools and other social programs that are promised but not paid for by the central government.
The total debt burden was obscured because local governments created separate investment agencies to pay for construction of highways and other infrastructure. Some have run into trouble raising revenues to repay lenders.
Monday’s audit report also cited problems including high debts for local industry, heavy reliance by local leaders on land sales to raise revenue and improper activities surrounding some government debt.
Auditors found some 13.5 billion yuan ($2.2 billion) that was improperly invested in stocks and real estate or spent on unauthorized construction, the report said. It said 69 people were implicated but gave no other details.