Monday, 19 December 2011

Bloomberg: China debts dwarf official data

While the world is today mainly focused on the debt crisis in Europe, Bloomberg has looked at another potential debt problem: the accumulation of local government debt in China.

Debt accumulated by companies financing local governments such as Tianjin ... is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

Much of the debt was used to fund the building boom that helped China's economy pull through the last global recession relatively unscathed. However, they could weigh on China's future growth.

The findings suggest China is failing to curb borrowing that one central bank official has said will slow growth in the world’s second-largest economy if not controlled. With prices dropping in China’s real estate market, economists warn that local authorities won’t be able to repay their debt because of poor cash flow and falling revenue from land sales they rely on for much of their income.

An indication of the weakening of the property market, at least in the residential sector, came on Sunday when the National Bureau of Statistics reported that new home prices dropped in November in 49 of the 70 cities tracked by the government, up from 34 in October. Five cities saw prices rise in November, down from 16 in October.

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