A former Chinese finance minister suggested Friday that local governments across China may be disguising how much debt they are sitting on. Bloomberg reports:
[Former Finance Minister] Xiang [Huaicheng]’s estimate for provincial and city government borrowings is almost double the 10.7 trillion-yuan figure that the National Audit Office gave for such debt in a 2011 report. The combined debt of China’s central and local governments may currently be more than 30 trillion yuan, said Xiang, who served as finance minister from 1998 to 2003.
Official statistics from China are notoriously unreliable, and unofficial statistics, such as those from a former finance minister using “his own personal estimates,” also shouldn’t be taken for more than a guesstimate.But if China’s GDP growth slows—and for what it’s worth almost all the experts who study the Chinese economy think it is entering a long term slowdown in its growth rate—some of that debt could be hard to repay.And it’s also true that as growth slows, local governments eager to keep the party going will be trying to pump things up with more debt rather than soberly cutting back. We note that California’s Governor Brown is in China this week trying to drum up business; maybe there’s a growth market in the Middle Kingdom for California’s increasingly experienced municipal bankruptcy experts.