Move will allow nation to increase transparency of massive local debt

China has increased the transparency of its massive local government debt by allowing local governments to release independent reports on their liabilities, a move that analysts said showed Beijing's increasing seriousness in dealing with the issue.

As of late Thursday, several provincial-level governments had released audit reports, including Guangdong, Guangxi, Ningxia Hui autonumous region, Beijing, Jilin and Zhejiang.

The move follows a report on China's debt situation, which was released on Dec 30 by the National Audit Office.

The top auditor found that as of June 30, 2013, local government debt and contingent liabilities had surged to 17.89 trillion yuan ($2.93 trillion), a 67 percent rise from the previous estimate of 10.7 trillion yuan at the end of 2010.

The NAO said China's prefectural-level governments had raised the most debt, or 27 percent of the total. County-level governments accounted for the second-largest amount, or 22.1 percent.

However, the NAO's report didn't provide any breakdown of the debt by locality, leaving observers and investors wondering.

"According to the provincial data that have been released so far, the risk from local government debt is still generally under control. These disclosures, which are a first, offer much more clarity for investors who want to invest in specific regions," said Li Yan, a senior analyst at China Chengxin International Credit Rating Co Ltd.

For example, in the economic powerhouse of Guangdong province, direct government debt (to be repaid by government fiscal revenue) accounted for 54.4 percent of the province's fiscal revenue as of the end of 2012. In Zhejiang, the ratio was 63.5 percent.

By comparison, the national figure was 105.7 percent at the end of 2012.

All local governments that have released their audit results so far stressed that risk is under control in general.

However, the situation in some cities is more worrisome. In Guangzhou — the capital of Guangdong — the municipal government's liabilities surged from 241.4 billion yuan in mid-2012 to 356.1 billion yuan a year later.

The Guangzhou government didn't provide a debt-to-fiscal revenue ratio, but it said the figure is approaching the international warning level.

It also said it is facing a "heavy" principal and interest repayment burden, and it vowed to cut its current debt by 60 percent by the end of 2016.

"Guangzhou's situation is in line with previous estimates. The disclosure at least showed the government is frank about the question", said Lin Jiang, a public finance professor at Guangzhou-based Sun Yat-sen University.

Provincial governments that have released results so far have identified "curbing debt growth" as a main part of this year's economic work. At the national Central Economic Work Conference in December, the central government made the same promise.

Credit rating agency Standard & Poor's said in a videoconference on Thursday that the central government isn't likely to allow local government financing vehicles to default in the short term.

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