Chinese Regime’s Local Debts Reach Record High, Equivalent to 52 percent of GDP

Chinese Regime’s Local Debts Reach Record High, Equivalent to 52 percent of GDP
A pedestrian walks past the People's Bank of China, China's central bank, in Beijing in a file photo. (Teh Eng Koon/AFP via Getty Images)

The Chinese communist regime’s Ministry of Finance released the local governments’ bonds and debt balances for this year on its website on Nov. 23. As of the end of October, the local government debts balance was $4.64 trillion.

Mainland Chinese media Securities Times and Tencent Finance jointly released the “China Cities Debt Ratio Ranking,” showing that most major cities in China have debt ratios exceeding 200 percent, and the debt ratios of some cities in underdeveloped regions are particularly high. In 2020, 85 cities had debt ratios exceeding 100 percent. Beijing and Guangzhou have debt ratios exceeding 200 percent. The debt ratio of Guiyang is as high as 929 percent, making it the most indebted city in mainland China.

According to Wall Street, investment bank Goldman Sachs issued a report on Oct. 29 indicating the total debt of China’s local government financing vehicles (LGFV) has surged from $2.5 trillion in 2013 to $8.3 trillion at the end of 2020. According to a Bloomberg report, this figure is equivalent to 52 percent of China’s gross domestic product (GDP) and is higher than the official total amount of the Chinese regime’s outstanding debt.

The Goldman Sachs report also pointed out that about 60 percent of China’s local government financing platforms that  issued bonds to raise funds have used the money to repay debt due from 2020 to 2021, rather than for new investment.

Taiwanese economic expert Huang Shicong told the Chinese language Epoch Times that many local government debts in mainland China are tied to real estate. Real estate has developed rapidly in the past years because the local governments have been maintaining and pushing up the prices of real estate and housing. A lot of local government finances come from selling land and borrowing. Some local governments even invest in real estate.

Meanwhile, Chinese regime Premier Li Keqiang mentioned the new downward pressure (decline) on the Chinese economy in a meeting in Shanghai on Nov. 22. The third time in less than a month.

Huang said that once China’s entire economy declines and real estate declines, the so-called demand expansion method of borrowing to pay off old debts will be affected. The Evergrande debt crisis, that detonated the entire real estate industry in China, has not only impacted the housing market, but also the finances of local governments.

Frank Tian Xie, a professor at the Aiken School of Business at the University of South Carolina, said in an interview with the Chinese language Epoch Times that local debt is a bit out of control. “Now that the local governments are in deficit, the central government cannot help. The local governments are unscrupulous in borrowing on a large scale, and the central government has no way to restrain it.”

Xie pointed out that when a normal government has such a large fiscal deficit, it should cut projects and staff, and find ways to tide over the difficulties. “The Chinese regime doesn’t care at all and continues to maintain a huge establishment. The ruling Chinese Communist Party does not have truly independent finances. Although it is now accounting independently, the finances are in fact ‘unified,’ which means that governments at all levels are working together to carve up the property of the Chinese people.”

Li Xin’an and Li Jing contributed to the report.
Alex Wu is a U.S.-based writer for The Epoch Times focusing on Chinese society, Chinese culture, human rights, and international relations.
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