China: the truth of local government debts to be revealed19 January, 2011, 12:16. Posted by Zarathustra
Tags: Debt, Economy
Liu Jiayi, the chief of the National Audit Office of China, revealed that the audit office will investigate the the true scale and structures of local government debts this year, according to a report by China Securities Journal. Last year, Liu Jiayi reported for the first time on their investigations of local government debts. The previous investigations have looked at 18 provinces, 16 cities and 36 counties, with the total local government debt of 2.79 trillion Yuan.
I have previously talked about the worries on China local government debts as they are running a huge deficit and are probably extremely highly indebted through local government financing vehicles (LGFV), but as always in the case of China statistics, no one knows for sure whether any numbers are truly correct. I certainly welcome more transparency on this issue. But a note of cautious: because the debts that local governments have might be astronomical, if the true scale of the financing operations is revealed, that would be a time bomb for the government. Especially as I am getting more cautious on China economy, the potential burst of the real estate bubble will hurt these local governments as they rely heavily on land sales, so that the true scale of the problems, if revealed, might prove to be making things even worse.
Besides local government debts, I certainly also want to see the true picture of vacancy of residential housing. That, of course, will be damaging if the property market is slowing down and the true horror story is revealed.
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