Jul 29, 2013

    China to audit all government debts

    CHINA'S National Audit Office will be conducting an audit of all government debts at the request of the country's State Council, or Cabinet, it said in a statement yesterday, underlining concern over rising debt levels in the world's second-biggest economy.

    The audit office, responsible for overseeing state finances, made the announcement in a one-sentence item on its website, but gave no details.

    The official People's Daily newspaper said separately on its website, citing unidentified sources, that an urgent order for the audit was issued last Friday, and work will start this week.

    The audit could indicate increased official concern over the systemic risk from rising debt levels in China, especially debts of local governments, as top leaders slow economic growth in order to promote reform.

    A local government buckling under the weight of its own debt is a troubling scenario for the leadership, and one that Deutsche Bank has said could potentially pose a systemic and macro-economic risk to the country.

    Standard Chartered, Fitch and Credit Suisse have estimated local-government debts in China at the equivalent of anywhere between 15 per cent and 36 per cent of the country's output, or as much as US$3 trillion (S$3.8 trillion), based on World Bank gross domestic product figures for last year.

    The audit office warned in a report last month that debt levels among local governments are rising and the financial burdens and risks are not being managed properly. It put total debt of a sample of 36 local governments at 3.85 trillion yuan (S$787 billion) at the end of last year.

    China's budget law forbids local governments from taking on debt directly, but they have borrowed heavily through special-purpose vehicles, while many have also borrowed from companies in private arrangements at high cost, with the money often used in speculative real-estate projects.