China's debt nearing international warning levels: report
Staff Reporter 2012-10-24 16:07
Continued borrowing to fund government projects is bringing China's debt to dangerous levels, says a thinktank report. (File photo/Xinhua)
China's debt levels are nearing the international warning level, says the Development Research Center of the State Council, a thinktank under Taiwan's cabinet.
According to a report from the center published on Oct. 22, China's total liabilities had reached 23.76 trillion yuan (US$3.8 trillion) by the end of 2010, equaling as much as 59% of that year's GDP.
Wei Jianing, the center's vice minister of economic research, said repayment dates for loans arranged in 2009 are fast approaching. Local debt needs to be closely monitored given the tightening of real estate regulations and a reduction in government land premiums, he added.
China's National Audit Office also released a report stating that 42% of local government debt needs to be repaid by the end of 2012, with another 54% to be repaid by the end of 2013.
Wei said the government's ability to repay all of these debts in time is a concern as it continues to borrow despite falling fiscal incomes. There are inherent contradictions in the country's financial system given that the government controls the lending platforms and regulations, he said.
Local government debt, in particular, is said to be growing out of control, expanding from 1 trillion yuan (US$160 billion) in 2003 to 4 trillion yuan (US$639 billion) in 2006 and 10.7 trillion yuan (US$1.7 trillion) last year.
Experts say that the major risks of growing local government debt lie in the various local financial vehicles, through which 4.97 trillion yuan (US$795 billion) has been borrowed. Around 26%, or 1,734, of these financing vehicles are said to be registering losses.
There are two key strategies to combat the debt crisis, according to the center's report. The first is to rectify the current debt chaos among local governments to prevent debts from escalating further, while the second is to make borrowing by local governments more transparent to avoid debts from being hidden or disguised, the report said.
The problem is not too much investment, but too much government investment, said Wei, who believes China's economy still has a strong outlook if the new government policies announced this year designed to promote private capital can be fully implemented.
