China local government debt shot up 70% in three years: report

The combined debt of China's local government shot up to 17.7 trillion yuan ($2.9 trillion), 70 per cent higher from three years ago, an official report showed.

The Chinese government had asked the National Audit Office (NAO) in July to do a round-up of the outstanding debts of its provincial governments. According the report, local governments were using new loans to repay over a fifth of their debt.

China has racked up a total government debt of about 58 per cent of its economic output.

Meanwhile, perceptions over the performance of the Chinese economy, the world's second-largest, are tinged with concerns over whether the loans can be repaid.

Though the figure is less than half the debt burdens in Japan - the world's third-largest economy - and Greece, according to some analysts China's debt cannot continue to grow at this pace much longer.

BBC quoted ANZ Bank economists Liu Li-Gang and Zhou Hao, as saying while China's total government debt remained low by the OECD standards, the pace of the rise was still alarming.

They added the national debt audit result could indicate that China's local government debt almost doubled in about two-and-a-half years.

Even as president Xi Jinping rolled out economic reforms, debt including contingent liabilities was up about 13 per cent in the six months through June, following a 48 per cent increase over the previous two years.

The audit result adds pressure on Xi, who on Sunday became head of a Communist Party leading group for reform, to set right a fiscal system that starved local governments of tax revenue.

Bloomberg quoted Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who had earlier worked at the World Bank, as saying it was a very sizable build-up and it was the kind of build-up that was not sustainable. He added, it was expanding at much too rapid a rate.

The Shanghai Composite Index was up 0.1 per cent in the morning yesterday with the gauge having fallen over 7 per cent this year on concern an economic slowdown and higher money-market rates would weigh on corporate profits.

Included in the 17.9 trillion yuan is 4.3 trillion yuan of contingent liabilities, where local governments would legally not be obliged to make repayments, according to the audit office said.

The study focused on 62,215 government agencies, as against less than half as many in the previous report, published in 2011.