Kenneth Rapoza, Contributor I cover business and investing in emerging markets. FULL BIO INVESTING 6/30/2013 @ 10:34PM |5,973 views Chinas Domestic Debt In The Spotlight; Nearly $2 Trillion And Counting Share 6 Comments Chinas state and local domestic debt rising at least 13% to nearly $2 trillion. Chinas foreign debt is around $750 billion, and rising. The domestic debt owed by China’s municipalities is closing in on $2 trillion, according to a recent government audit of 36 local governments. Last week, the National Audit Office (NAO) issued a new report that showed debt in the those 36 selected areas had grown 13% in the last three years. Moodys Investors Service estimates the direct and guaranteed debt of local governments nationwide was around 12.1 trillion yuan ($1.97 trillion) at the end of 2012, up from 10.7 trillion in 2010. Exact numbers are an unknown due to the special finance vehicles municipalities use to invest in pet-projects, from roads and bridges to residential complexes and shopping malls. Selected local governments in the NAO report comprise 15 provinces and the 15 provincial capital cities, as well as three municipalities and three districts. Other Chinese officials have even higher estimates, the China Daily reported on Sunday. Dong Dasheng, deputy minister of NAO, said the latest debt scale for governments at all levels was between 15 to 18 trillion yuan. Xiang Huaicheng, a former finance minister, said in April that China’s local governments might have already borrowed more than 20 trillion yuan. The number keeps getting higher rather than lower. “I personally agree with former minister Xiang’s estimate of 20 trillion yuan stock in local debts,” Zhao Quanhou, head of financial research with the Fiscal Science Research Center at the Ministry of Finance told the Daily. China banks have been in the spotlight since last week. Last Sunday, the Central Bank issued a statement saying it would not support small to mid-sized muni-banks which have over financed and mismanaged their risks. Interbank rates had skyrocketed in a short period of time to more than 11%; this in a country where interest rates are more commonly had at around 3.5% to 4.5%. But when the market panicked that China was facing a Lehman Brothers style liquidity crisis, the Central Bank quickly back pedaled and said it would provide financial assistance to troubled muni-banks. See: Is China Right To Brush Aside Credit Squeeze? – CNBC Beijing and the finance regulators are especially concerned that municipalities have used their special financing vehicles as a pension fund product for wealth management firms who are investing in real estate and other hard assets with no return whatsoever. Beijing tightened regulation of the financing vehicles last year in a move to choke the muni’s so-called shadow banking system. This shadow banking system makes it nearly impossible for China to get a grip on the overall debt burden at the state level because a lot of those loans do not show up on bank balance sheets. On the plus side, traditional bank loans remain the largest source of financing for local governments, accounting for 78% of the total balance by the end of 2012. But their share has decreased by 5.6 percentage points since 2010 as the shadow banking system grows. Debt issuance like bonds have risen by 62% over the last year as well. Bank loans and bond issuance together account for approximately 90% of the debt on local government books, while the other 10% consists of private equity funds and non-performing loans from real estate. According to a calculation by The Economic Observer, local governments will face two trillion yuan in debts due this year. China Daily pointed out today that the figure is equal to nearly 20% of municipalities’ fiscal revenues and more than half of their fees from land sales. China’s foreign owed debt is $764 billion. The International Monetary Fund puts China’s total debt to GDP at around 22% this year, slightly down from 22.8% in 2012. By comparison, Japans debt-to-GDP ratio is well over 100% and that of the U.S. is closer to 90%. see photos Click for full photo gallery: Best Places On Earth To Run A Business Comments Called-Out Expand All Comments DemandSider 1 year ago Kenneth, Research CDO and derivatives debt totals. You’ll discover the etymology of a more » Called-out comment Author Kenneth Rapoza, Contributor 1 year ago Thats a tough search algo. You have to give me more meat than that. Im not a one man NSA agent, more » Called-out comment DemandSider 1 year ago “The International Monetary Fund puts China’s total debt to GDP at around 22% this year, more » Called-out comment Author Kenneth Rapoza, Contributor 1 year ago You mean WRITE this, not right this. Right? No one tells me. Unless Im wrong, then my editors more » Called-out comment Author Kenneth Rapoza, Contributor 1 year ago Thats okay. I know…people make mistakes. We’re not putting this in print. Digital seems to more » Called-out comment SHOW MORE COMMENTS my question is Who is china in debt too ????
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