BEIJING (AFP) – Chinese local governments held $1.65 trillion in debt by the end of 2010, the state auditor said on Monday, warning that there was a risk that some could default.
Excessive borrowing by authorities to fund infrastructure and other projects has sparked fears among China’s leadership about the risks the loans pose to the country’s financial stability and the overall economy.
By the end of last year, local governments had taken 10.7 trillion yuan ($1.65 trillion) in debts, the National Audit Office (NAO) said in a statement, or about 27 percent of China’s 2010 GDP of 39.8 trillion yuan.
“The ability of some areas and industries to repay debt is weak and potentially risky,” the NAO said.
The announcement represents the first time China has given an overall figure for local government debts, according to the state-run Xinhua news agency.
The state auditor said some local governments had to make new borrowings in order to pay back old loans, and some are depending heavily on revenue from land sales to meet their debt payments.
Auditors also found that 108.3 billion yuan of the total debts had been issued or used improperly, using methods such as providing fraudulent collateral or diverting the funds raised into capital or real estate markets.
The NAO suggested that efforts should be made to “properly resolve” the current debt situation, based on a principle that says “the borrower must bear responsibility.”
Local government financing vehicles — intermediary agencies through which the governments take out loans from banks because they are officially banned from assuming debt directly — must be “cleaned up and regulated”, it said.
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