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Local govt solvency tested on debts due

By Wei Tian in Shanghai (China Daily) Updated: 2014-02-21 07:18

The solvency of China's local governments is being tested as they pull out all the stops to meet the payment deadline for their heavy borrowings over the last several years.

Because it has become a more challenging task for local officials facing slowing fiscal revenue growth, more market forces, such as equity transfer and assets securitization, could be introduced to help tackle the issue, analysts said.

Local govt solvency tested on debts due

Local govt solvency tested on debts due

A comprehensive survey of local governments by the National Audit Office revealed that direct and indirect debt of local governments amounted to 17.9 trillion yuan ($2.94 trillion) as of June 2013, up from 10.7 trillion yuan at the end of 2010. It was equal to 32 percent of the country's gross domestic product that year.

Of the trillions of yuan borrowings of which local governments are responsible for repayment, Jiangsu province in East China has the heaviest liabilities at 763.6 billion yuan, an audit of local government's checkbooks showed.

Nearly 22 percent of the government debt will mature in 2014, according to the audit office survey. Experts estimate the interest alone will total 1.6 trillion yuan.

Among first-tier cities, Beijing will have 194 billion yuan of debt due for repayment in 2014, while Shanghai will have to raise 220 billion yuan for debt repayment. Guangzhou faces 50 billion yuan.

However, fiscal income, which used to be the major source of government's debt payment, may not be able to cover what is owed as local governments lower revenue growth targets.

According to the Ministry of Finance, local government revenue grew 12.9 percent in 2013 to 6.9 trillion yuan. But most of the local governments have set this year's growth target in their draft budget plan at around 10 percent.

Land sales revenue, which is another major part of government revenue, may also be inadequate for debt repayments because the housing market is expected to cool down from a period of rapid expansion over the past few years.

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