Mainland's local debt level remains safe
Updated: 2011-08-10 06:22
By Liao Qun(HK Edition)
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Concerns over the mainland's public debt level have arisen since the local government debt problem surfaced recently. There have been furious debates about the size of the local government debt with four different versions, which we summarize here.
Version 1, the official version by the National Audit Office of China (NAO).As of end-2010, outstanding local government debt totaled 10.7 trillion yuan, of which 4.96 trillion yuan was owed by Local Government Financing Vehicles (LGFVs).
Version 2, an estimated version by some market observers based on their reading of 2010 Regional Financial Development Reports by the People's Bank of China (PBoC), puts the LGFV debt level at as high as 14.4 trillion yuan.
Version 3, a cited version of the China Banking Regulatory Commission (CBRC) by a local Chinese investment bank. As of end-November 2010, total debts outstanding of LGFVs hit 9.1 trillion yuan.
Version 4, an estimated version by an international rating agency reached by comparing the discrepancies between Version 1 and reports by China's banking authorities.Total local government debts are possibly 3.5 trillion yuan more than Version 1's 10.7 trillion yuan, that is, 14.2 trillion yuan.
Since it is an issue of information, to debate each version's reliability is in essence an argument about the reliability of the source of information.
According to NAO, it employed more than 40,000 personnel and spent more than three months in conducting a survey on the size and structure of local government debts in each county of the country, and Version 1 is the result of such a survey. Hence the source of information in Version 1 is clear.
The owner of the second version, some market observers, claimed that they had derived the version from PBoC's 2010 Regional Financial Development Report. But the PBoC has recently clarified that the report was misinterpreted and could not lead to the estimated 14.4 trillion yuan for the total debts of the LGFVs as claimed by these market observers.
In the third version, the local investment bank claimed that the estimate of 9.7 trillion yuan for the debts of LGFVs came from CBRC. However, the CBRC has never released nor confirmed such a figure. It is speculated that the bank guesstimated the figure from some informal discussions with CBRC officials.
How about Version 4 then? The rating agency holding this view stated that their version was derived from the discrepancies between Version 1 and reports of China's banking authorities, that is, between Version 1 and Version 2 and / or Version 3. However, such discrepancies either stemmed from misinterpretation of Version 2, or was nearly non-existent in the case of Version 3. Therefore, the reliability of Version 4 is also doubtful.
In view of the above discussion, Version 1 is deemed to be the most reliable.
Turning to the central government debt, according to the Ministry of Finance and the State Administration of Foreign Exchanges (SAFE), as of end-2010, domestic and international debts outstanding of the central government amounted to 6.75 trillion yuan and $34 billion (approximately 221 billion yuan) respectively.
Even if we assume that the central government take the repayment responsibility for all 10.7 trillion yuan of local government debt, China's total public debt outstanding - including central and local government debts amounting to 17.67 billion yuan as at end-2010 - accounted for 44.4 percent of the country's GDP in 2010.
This debt level is still some distance away from the international alarm line of 60 percent. Needless to say it is much lower than the nearly 100 percent in the US and European core countries, let alone the more than 100 percent level for those crisis-stricken European periphery countries as well as Japan.
The author is senior vice president and chief economist / strategist for China Banking Group at CITIC Bank International. The opinions expressed here are entirely his own.
(HK Edition 08/10/2011 page2)