Local govts' 3 trln yuan in debt

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China's top auditor said Wednesday that the country's local governments had run up bank loans totaling almost 3 trillion yuan by the end of last year, most of it to fund infrastructure construction.

Liu Jiayi, head of the National Audit Office (NAO), said that 18 provincial, 16 city and 36 county-level governments audited had accumulated debts of 2.79 trillion yuan (410.3 billion U.S. dollars).

Loans totaling 1.04 trillion yuan were secured from banks and financing platform companies last year, and the other 1.75 trillion yuan dated from previous loans, said Liu in his report to the 15th session of the Standing Committee of the 11th National People's Congress (NPC), China's top legislature.

According to China's law on government spending, it is illegal for local governments at all levels to have deficit accounts, and local governments should clear their loans within the fiscal year.

It is the first time China's central authorities have released details of local government debts since potential risks from the chaotic local government financing activities become a serious concern.

The report said only 8.92 percent of new debts in 2009 were invested in the central government's 4-trillion-yuan stimulus package projects.

A considerable proportion of last year's loans were used to finance transport and other infrastructure facilities that were started before 2008, it said.

The NAO report gives the public a glimpse into local governments that have constantly violated state law with legal and illegal financing channels to pay for booming urbanization.

The central government allows local governments to establish financing platform companies with their fiscal fund, land and other assets to supplement capital revenues for economic and social development.

However, local governments are prohibited from using their revenues and government assets to guarantee loans from banks and other finance institutions.

The State Council, China's Cabinet, ordered local governments earlier this month to halt all forms of fiscal revenue guarantees for debts.

According to the NAO report, auditors found 307 financing platform companies established by the local governments they audited. Loans from those companies totaled 1.45 trillion yuan, accounting for more than half of their total deficit.

Chinese economists have repeatly expressed concerns about local government loans, warning that some local governments may go bankrupt unless the central government issues stricter regulations.

Among the surveyed local governments, the debts of seven provincial, 10 city and 14 county governments exceeded their spendable incomes last year.

One local government's debt was triple its spendable income in 2009, according to the report.

"Some local governments have heavy burdens to repay their loans which brings certain debt risks to the government," Liu told more than 170 members of the NPC's Standing Committee on Wednesday.

Gao Qiang, vice chairman of the NPC's Financial and Economic Committee, said in his report to the Standing Committee that local governments should seek the authority of local people's congresses before applying for loans.

A mechanism to publish government debt information and other regulatory policies should be established for government loans, Gao said.

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