Thursday, July 31, 2014   

17.9 trillion yuan local government debt burden poses risks to Beijing finances, says ratings agency
(01-06 11:40)

Moody's said today that rising local government debt levels revealed by a national audit, will be a risk to China's government finances.
Local government debt has soared to US$2.95 trillion, rising by 70 percent, according to a recent official audit. The debt was reported at the end of December as having risen to 17.9 trillion yuan, compared with 10.7 trillion yuan at the end of 2010.
In a report today, the credit rating agency said direct debt has grown beyond the capacity of many local governments to service it, and the central government may need to provide additional fiscal resources to local governments to bolster their finances and debt-repayment capacity.
The China's National Audit Office report also shows that the maturity structure of local government debt is relatively near term, suggesting that general government gross financing needs will further increase, Moody's said.
However, the accumulation of combined local and central government direct debt has been offset to a considerable degree by the rapid rise in nominal GDP growth. As a result, local and central government debt grew relatively moderately as a share of GDP, to 37.1 percent of GDP in June 2013 from 34.1 percent in 2010. Nonetheless, Moody's estimates that the large accumulation of local government contingent debt pushed the total direct and indirect debt level to a much higher 50 percent of GDP in June 2013.
But such a level is still manageable and future payment capabilities will be enhanced if China's GDP growth remains, relatively strong at around 7 percent per year over the next five years, Moody's said.--The Standard

   
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