What is the true level of China’s municipal debt?
China may have understated local government debt by as much as $540 billion, according to a report by Moody’s, with most of the funding coming from banks. July 15, 2011 | Nadir AhmadWith China’s economic growth slowing to 9.5% in the second quarter (down from 9.7% and 9.8% respectively in the preceding two quarters) according to the National Bureau of Statistics, just as inflation has risen to 6.4% YoY in June, concerns are growing about the coming hard or soft landing of the country’s economy and the banks that lend to it. One potential trouble spot in the Chinese economy is believed to be municipal government borrowing, given challenges in tax collection and a lack of clear revenue streams, and leverage in this area may be more extensive than Chinese authorities are willing to admit. A July 2011 report released by Moody’s concludes that a cross examination of the findings between China’s National Audit Office (NAO) and the findings of Chinese banking regulators revealed that the NAO had either disregarded or neglected to report on an additional $540 billion of off-balance sheet debt. Figure 1. Debt of China's Local Governments (2008-2011*) This debt is largely carried by ‘local government financing vehicles’ that have been established to seek additional government financing for municipalities, which are limited in their abilities to raise funds through loans and cannot issue debt. The addition of this $540 billion brings municipal debt to just over $2 trillion. With the NAO reporting that the banking sector is responsible for issuing $1.3 trillion of the reported municipal debt of $1.6 trillion, Moody’s enlarged estimate would probably place banks’ total exposure nearer to the $1.8 trillion mark. The NAO classifies local government debt into three categories: the first, which accounts for 63% of all local debt, is debt which will be directly repaid with fiscal revenues; the second, which accounts for 22% of debt, carries an unspecified guarantee of repayment; the third, most troublesome... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: China, Credit Risk, Government Finance, Risk and RegulationChina,Credit Risk,Government Finance,Risk and Regulation, China,Credit Risk,Government Finance,Risk and Regulation, Keywords:Government Debt, Moody’s Government Debt, Moody’s
|