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China said local governments owe debt equal to more than a fourth of the country's economic output, the first time Beijing has put a number on such debt, fueling fears banks could again face mountains of bad loans and underlining the limits Beijing faces as it battles inflation.
The National Audit Office said Monday that local-government debts total some 10.7 trillion yuan ($1.65 trillion), or 27% of China's gross domestic product last year. The report Monday was billed as a comprehensive tally of such debt, much of which was incurred during a two-year stimulus-spending binge ordered by Beijing to fight the effects of the global recession.
Some analysts say the National Audit Office's figure failed to count certain kinds of local government debt, meaning the actual total could be even higher.
Either way, the figure released Monday affirms analysts' belief that the true level of China's government debt is considerably higher than has been acknowledged by the Finance Ministry, which puts just the central government's debt at 17% of GDP without taking into account local governments' debt. A report this month by Beijing-based research firm Dragonomics, anticipating the local-debt figure issued Monday, estimated total government debt at 82% of GDP at the end of 2010, a figure that also encompasses money owed by other state entities including the central bank, government policy banks, and the Ministry of Railways.
Rapid economic growth, low interest rates, and considerable government-owned assets all mean that the chances of a debt crisis in China are remote. But acknowledgment Monday of the high local-government debt tally indicates that the fiscal resources available for the world's No. 2 economy are considerably more constrained than the government has generally admitted.
The high local-government debt reduces the government's room for maneuver in the fight against inflation, because raising interest rates increases the cost of servicing such debt. Premier Wen Jiabao acknowledged Monday that the government is likely to miss its target of 4% for the consumer-price index over the course of the year.
Direct comparisons to public debt elsewhere, such as the U.S., are difficult. Gross public debt in the U.S. was 91% of GDP in 2010, according to the International Monetary Fund. That includes debt owed by one arm of the government to another, such as Social Security, but doesn't include exposure to debt owed by Fannie Mae and Freddie Mac, the mortgage companies the U.S. has nationalized, nor state and local debt.
Given the unified nature of China's political system, analysts think China's central government is ultimately on the hook for the debts incurred by local governments. But it remains unclear how much of that debt will go bad, and how exactly it would be accounted for. Much of the borrowing went to pay for expensive projects in transport, water and other infrastructure areas that have uncertain payback. Eliza Liu, an economist at China Construction Bank International, estimates that as much as 20%-30% of the loans are at high risk of problems, especially loans to financing vehicles in smaller cities.
Local governments themselves are hard-pressed for funds because of declining land sales. According to the Audit Office report, $384 billion of the total is backed by the guarantee of repayment from land sales. Ministry of Land and Resources data show revenue from land sales in the first five months of the year fell 11% from the same period in 2010.
Indeed, the audit office's report shows that for 78 city-level and 99 county-level financing vehicles, total debt is more than 100% of annual revenue for the local government.
According to a report by China International Capital Corp., a Beijing-based investment bank, Deqing County Transport Investment Group, a local government financing vehicle in Zhejiang province, has amassed $615 million in debt funding its program of investment in transport and water infrastructure. The group's $61 million annual cost of servicing that debt is considerably in excess of annual income of $15 million. Like other financing vehicles, Deqing County group counts on subsidies from local governments, but it nonetheless face short-term pressures in repaying its debt.
"The debt burden is heavy, and without support the Group does not have ability to repay" CICC analysts wrote in a note to clients. Deqing County Transport Investment Group declined to comment on the figures.
Many analysts think a big chunk of the check will go to China's commercial banks, which are already low on capital. Paul Schulte, head of global banks research at China Construction Bank International, says that uncertainty about the size of banks' exposure to local government borrowing, and about the central government's response, is one factor depressing market valuations for China's banks. Hong Kong-listed shares in Industrial & Commercial Bank of China Ltd., the nation's biggest lender, have fallen more than 12% in the last two months.
A report published early this month by China's central bank suggested that just the debt taken on by local government financing vehicles—entities created and backed by local governments to get around legal constraints on their borrowing—could equal 30% of loans in the banking system. That would be about $2.2 trillion.
The equivalent number in the audit office's report is $764 billion, with much of the rest of the $1.65 trillion total it cites coming from debts taken on directly by government departments and organizations. The audit office says its review covered 6,576 financing vehicles, compared to a figure of around 10,000 cited by the central bank. The audit office declined to comment and the central bank didn't immediately provide a response on the discrepancy.
Victor Shih, a professor at Northwestern University who has studied the issue extensively, says that combining information in both reports suggests a total for local government debt of closer to $2.6 trillion, or 42% of GDP.
The government has taken steps to reduce the risks to the banking system. In December, the China Banking Regulatory Commission required banks to increase the amount of capital they hold to guard against the risk of default by local government-backed borrowers.
But analysts believe that neither banks nor local governments have been in any rush to make the provisions required by the regulations. "Implementing the regulation would cost money for the banks and starve local governments of investment capital—it is in no one's interest to go fast," says Prof. Shih.
Publication of the National Audit Office report comes amid expectations that the government could soon announce new policies to address the problem. Early in the last decade, the government transferred tens of billions of dollars from China's foreign-exchange reserves to help recapitalize state banks. With those reserves now past $3 trillion, the government could opt for similar action this time if the problem is severe enough.
But some analysts remain skeptical that such a solution is likely. The level of nonperforming loans acknowledged by the banks is currently low. According to a June report by Bank of China International, three of China's largest banks, Industrial & Commercial Bank of China, China Construction Bank, and Agricultural Bank of China report end-2010 NPL ratios on their loans to local government financing vehicles of 0.3%, 0.9% and 1.5% respectively, widely considered extremely healthy ratios.
Ms. Liu believes that with information about the size of the problem still unclear, it is unlikely that the government will act. "It is more likely the government will require the banks to look at the loans on a case-by-case basis, and increase collateral for those at greatest risk of default," she said.
The political timing for a comprehensive solution may also be inauspicious. President Hu Jintao and Premier Wen Jiabao are both approaching the end of their second, and final, terms. The admission that a large chunk of stimulus lending has now turned bad would mar their record as leaders. Prof. Shih believes that resolution of the problem will have to wait till at least 2012. "The current leaders have done enough to assess the size of the problem, the solution will be left to the next generation" he said.
(인용: WSJ)