Opinion

China should be aware of local govt debt risks: Official

(Xinhua)
Updated: 2010-11-02 17:35

BEIJING - China should be aware of the risks posed by local government debt to prevent a European-style financial crisis, a senior official said in Beijing on Tuesday.

Jia Kang, director of the Institute of Fiscal Science Research under the Ministry of Finance, told a forum on fiscal and financial policies that China's combined public debt, including treasury bonds, policy loans and latent local government debt, could be as high as 50 percent of gross domestic product (GDP).

Manufacturing continues to expand Related readings:  Local govt debt issuance down 70% in H1  Big local govt debt to dampen banks' profits  Local govt debt could trigger financial crisis

Local government debt is estimated at around 8 trillion yuan, equivalent to 20 percent of the country's GDP, Jia said.

Jia's estimate was higher than the figure disclosed by the China Banking Regulatory Commission in August. China's local government debt hit 7.66 trillion yuan ($1.14 trillion) as of June, according to data provided by the country's banking regulator.

China rolled out a $586-billion economic stimulus package in late 2008, and local governments have also stepped up investment to bolster the national economy amid the global financial crisis and during the recovery.

Jia also said the overall risk is controllable as China's foreign debt was smaller than that of other major economies, although it jumped 53 percent year on year to hit $513 billion at the end of June.

He said the government should step up regulation and transparency of local government debts and better coordinate fiscal and financial policies to prevent risks.