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China’s Local Debt Might Be Way Higher Than We Think

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.

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  • Nick M.

    If true, 30 trillion yuan is currently the equivalent to 4.8 trillion USD, which would give them approximately 65 percent debt to GDP. Nowhere close to Europe’s or our debt problems yet, but that will be a growing concern due to China having to deal with its rising military spending, the theoretically amount of it would have to spend to clean up its environment, and its own long term demographic issues. People are expecting China’s growth to slow down as it is major exporter nation, but its customers are running out of money to spend while dealing with their own debt issues.

    Heck, if they were forced to move to take over DPRK in the wake of a war to prevent RoK or US on their border, that huge economic sucking sound may trigger major long term problems sooner rather than later.

  • dralfredbellows

    Let’s be clear that, guesstimates aside, China runs an international deficit with each of their trading partners so that they can run a surplus with the United States. Internally, they’ll crumble, as communist nations do wherever they’ve existed, but when that crumbling happens, they’ll call the U.S. debt and then we’ll have ourselves a real “international incident.”

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