A nation-wide audit of borrowing in China has revealed that the debt burden of regional governments has increased drastically of late. The development was feared to have an impact on the domestic economy as a whole.
China on Monday announced the results of an audit revealing the liabilities carried by local governments. It said debt had skyrocketed to 17.9 trillion yuan ($2.95 trillion, 2.14 trillion euros) as of the end of June 2013.
The figure provided by the National Audit Office (NAO) compared with 10.7 trillion yuan in liabilities as of the end of 2010, marking a staggering increase of 67 percent.
The development is the result of local Chinese governments having used massive debt to fuel economic growth short-term, often pursuing projects that are not viable economically in the long run.
Central bank comment
"We believe the markets and the Chinese government should be alarmed by the rapidly rising leverage," said Lu Ting, an economist at Bank of America Merrill Lynch in Hong Kong.
He added, though, he did not see the world's second-largest economy on the brink of a larger debt crisis and hoped the new central leadership would take decisive counter-measures.
"The People's Bank of China can prevent a public debt crisis with its unlimited capability for liquidity supply," Lu Ting noted, pointing out that almost all government debt in the country was denominated in China's own currency and owned domestically.
In addition, China sits on a trove of national savings, including $3.5 trillion in foreign exchange reserves.
hg/jlw (AFP, Reuters)