Reality Starts To Bite In China’s Local Government Debts

The issue of local government debt in China isn’t new – many analysts have long pointed to this as a major challenge to the stability of the Chinese economy.

Local funding is in a delicate state. With economic growth stalling and more debts due to be repayed, cities and provinces have to balance falling revenue with rising funding costs.

In the first quarter of this year, Chinese local governments appeared to be losing their appetite for debt. Outstanding loans to local government financing vehicles fell from their peak of Rmb9.1tn in 2010 down to Rmb6.1tn this year, according to a report today in the 21st Century Business Herald. Local governments, it seems, were paying back their debts.

However, local governments are now under increasing funding pressure as debts come due and revenues fall. Over 17 per cent of the loans to local governments, roughly Rmb1.8tn, are due this year, according to the National Audit Administration in July 2011.

That is already throwing a big spanner in local government spending plans. Shenzhen, the city across the border from Hong Kong, will have to spend 13 per cent of its annual budget to repay debts this year, including local bonds issued in 2009 to boost the economy after financial crisis, said Southern Metropolis Daily, a local newspaper.

At the same time, many local governments reported the slowest growth of tax income since 2009. With growth slowing, Guangdong and Jiangsu, the two biggest provinces in China by GDP, experienced much slower revenue growth in the first half in 2012 from previous year, according to the two provincial governments at the end of last month.

Lin Jiang, head of the department of public finance and taxation at Sun Yat-sen University and a government adviser, told the Southern Metropolis that it shows how hard it is for local governments to collect taxes amid a slowdown.

One fifth of industrial enterprises in Guangdong province, the manufacturing hub, suffered losses due to weakening demand and rising costs in the first half of 2012, with the resulting decrease in tax payments. According to a Guangdong province statement for the first half of 2012, tax revenue increased by just 4.3 per cent while non-taxation income rose by 32.4 per cent year on year. The proportion of tax income fell by 3.4 percentage points in the province’s overall income.

On top of that, land revenues on which most Chinese local governments depended heavily dropped dramatically as Beijing doesn’t want to loose its tight control on property market.

With local governments starting to ramp-up stimulus again – such as Changsha’s $130bn plan – the debts in many regions could start piling up again. Though tax revenue should also go up with higher growth, China could find itself in a vicious cycle.

沈阳店铺结束罢市

沈阳店铺关门近三周

店铺罢市行动使沈阳许多街道空无一人。

经过连续数日的罢市之后，辽宁省会沈阳市的店铺已于周四（8月9日）恢复正常营业。

导致罢市的原因是关于当局为增加财政收入计划以检查安全和打假名义对店 铺进行罚款的传言。


大规模的店铺采取关门闭市的方式对抗可能发生的当局检查行动，沈阳许多地方连日来空无一人。

据中国互联网传言，沈阳的罢市情况已经蔓延到大连、本溪、鞍山和抚顺等地。

民众抱怨说，店铺罢市给他们的日常生活带来极大不便。

为防止可能发生的社会不稳，沈阳市政府周二在其官方微博发布公告说，传言所说的针对店铺的突击检查和罚款行动实属谣言，并敦促店铺尽 早结束罢市。

沈阳几份官方报纸也刊登题为《勿信传言 正常营业》的报道，呼吁商家尽快恢复营业。