Share on facebook
Share on twitter
Share on telegram
Share on whatsapp
Share on linkedin
Share on print
Share on email

Risk Watch: Former Top Banking Regulator Talks Local Debt Risks

◎ Shang Fulin said that more attention should be paid to local government debt, particularly the debt of administrations below the provincial level.


Shang Fulin, the former China Banking Regulatory Commission director, said that more attention should be paid to local government debt, particularly the debt of administrations below the provincial level.

He added that he had previously learned from city-level secretaries and mayors that he investigated that their regions were not ideal for investment and that returns were hard to come by in the short term. When new officials took over those regions, they were shocked to learn the financial situation that their predecessors had left them with. Shang said: “Those city-level leaders said that stalls have already been set up and the money is spent, but investments still have to be brought in. What is to be done?”

Shang made his remarks during a Chinese People’s Political Consultative Conference (CPPCC) regional group meeting at the Two Sessions on March 7.

The backdrop:
1. In recent months, a number of provincial and city governments issued notices regarding local debt liquidation inspection work.

For instance, a small town in Hulunbuir, a prefecture-level city in Inner Mongolia, was found to be 300 million yuan (about $47.8 million) in debt as of end 2017. However, the town had also accrued through non-government agency financing an implicit debt of 1.5 billion yuan, or an amount five times of its official debt.

A county in Ningxia Province had a debt of 696 million yuan as of end 2017, according to official data. But take the county’s implicit debt into account and its total liabilities rose to 2.828 billion yuan, a debt ratio that at once shifts its financial status from healthy to dangerous.  

2. On Nov. 14, 2016, the General Office of the State Council issued a “local government debt risk emergency plan” that clarified that local governments are responsible for repaying their borrowed debts, and that the central government will not provide any assistance in principle. Also, an accountability system was set up to deal with local government debt risks.

3. In 2017, the Ministry of Finance announced that the balance of local government debt exceeded 16.47 trillion yuan. If implicit debt is four times the official debt balance (a conservative estimate), then total local debt could be as high as 82.35 trillion yuan. Given that China’s GDP in 2017 is 82.71 trillion yuan (a figure that is skewed by fabricated data), local government debt accounts for 99.56 percent of the GDP.

Why it matters:
China’s local government debt risk is very high, and Beijing is still trying to fully grasp the whole situation.

Our take:
1. Shang Fulin’s disclosure at the Two Sessions indirectly affirms our gloomy outlook on China’s economy in 2018. While the 2017 GDP figure reflects healthy economic growth, there is a sense that crisis could be just around the corner.

In January, some provincial governments confessed to fabricating GDP figures in previous years, while 21 provinces revised their GDP projection for the year downwards. These are not good omens.

2. The Xi Jinping administration’s deleveraging campaign and stringent financial regulation are aimed at removing risks and avoiding a debt crisis. To better manage risks in China, companies with businesses on the mainland need to be able to read the political tea leaves and extract valuable information from open source government documents.

“Your publication insights tremendously help us complete our regular analysis on in-depth issues of major importance. ”
Ms. Nicoleta Buracinschi, Embassy of Romania to the People’s Republic of China
"I’m a very happy, satisfied subscriber to your service and all the deep information it provides to increase our understanding. SinoInsider is profoundly helping to alter the public landscape when it comes to the PRC."
James Newman, Former U.S. Navy cryptologist
“Prof. Ming’s information about the Sino-U.S. trade war is invaluable for us in Taiwan’s technology industry. Our company basically acted on Prof. Ming’s predictions and enlarged our scale and enriched our product lines. That allowed us to deal capably with larger orders from China in 2019. ”
Mr. Chiu, Realtek R&D Center
“I am following China’s growing involvement in the Middle East, seeking to gain a better understanding of China itself and the impact of domestic constraints on its foreign policy. I have found SinoInsider quite helpful in expanding my knowledge and enriching my understanding of the issues at stake.”
Ehud Yaari, Lafer International Fellow, The Washington Institute
“SinoInsider’s research on the CCP examines every detail in great depth and is a very valuable reference. Foreign researchers will find SinoInsider’s research helpful in understanding what is really going on with the CCP and China. ”
Baterdene, Researcher, The National Institute for Security Studies (Mongolian)
“The forecasts of Prof. Chu-cheng Ming and the SinoInsider team are an invaluable resource in guiding our news reporting direction and anticipating the next moves of the Chinese and Hong Kong governments.”
Chan Miu-ling, Radio Television Hong Kong China Team Deputy Leader
“SinoInsider always publishes interesting and provocative work on Chinese elite politics. It is very worthwhile to follow the work of SinoInsider to get their take on factional struggles in particular.”
Lee Jones, Reader in International Politics, Queen Mary University of London
“[SinoInsider has] been very useful in my class on American foreign policy because it contradicts the widely accepted argument that the U.S. should work cooperatively with China. And the whole point of the course is to expose students to conflicting approaches to contemporary major problems.”
Roy Licklider, Adjunct Professor of Political Science, Columbia University
“As a China-based journalist, SinoInsider is to me a very reliable source of information to understand deeply how the CCP works and learn more about the factional struggle and challenges that Xi Jinping may face. ”
Sebastien Ricci, AFP correspondent for China & Mongolia
“SinoInsider offers an interesting perspective on the Sino-U.S. trade war and North Korea. Their predictions are often accurate, which is definitely very helpful.”
Sebastien Ricci, AFP correspondent for China & Mongolia
“I have found SinoInsider to provide much greater depth and breadth of coverage with regard to developments in China. The subtlety of the descriptions of China's policy/political processes is absent from traditional media channels.”
John Lipsky, Peter G. Peterson Distinguished Scholar, Kissinger Center for Global Affairs
“My teaching at Cambridge and policy analysis for the UK audience have been informed by insights from your analyzes. ”
Dr Kun-Chin Lin, University Lecturer in Politics,
Deputy Director of the Centre for Geopolitics, Cambridge University
" SinoInsider's in-depth and nuanced analysis of Party dynamics is an excellent template to train future Sinologists with a clear understanding that what happens in the Party matters."
Stephen Nagy, Senior Associate Professor, International Christian University
“ I find Sinoinsider particularly helpful in instructing students about the complexities of Chinese politics and what elite competition means for the future of the US-China relationship.”
Howard Sanborn, Professor, Virginia Military Institute
“SinoInsider has been one of my most useful (and enjoyable) resources”
James Newman, Former U.S. Navy cryptologist
“Professor Ming and his team’s analyses of current affairs are very far-sighted and directionally accurate. In the present media environment where it is harder to distinguish between real and fake information, SinoInsider’s professional perspectives are much needed to make sense of a perilous and unpredictable world. ”
Liu Cheng-chuan, Professor Emeritus, National Chiayi University
Previous
Next