Local Debt Risks

According to China’s Ministry of  Finance, domestic local government debt balance stood at 16.47 trillion yuan (US$2.46t) at the end of November 2017, below the government-targeted ceiling of 18.82 trillion yuan (US$2.8t). Over the years, Chinese financial regulators have released a string of measures including a debt-for-bond program to rein in local government debt. Hidden debt, however, is feared to be much higher due to the use of nontraditional means of fund-raising, including fake public-private partnerships and illegal financing channels. The biggest risk for local government debt is opacity, and increased transparency is the best way out. It is high time to audit the scale of local government debt nationwide, and regulators have to step up efforts to rectify local debt irregularities. Local officials should be held accountable for related violations.