Government and Policy

Enhanced supervision urged to monitor debt risks

(Xinhua)
Updated: 2011-02-15 22:38

CHANGCHUN - A Chinese political advisor has urged the local legislature to increase its supervision of local government's financing abilities to prevent mounting debt risks.

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Loans to local governments through their financing vehicles remain a serious concern to the health of China's economy in the wake of massive government stimulus packages during the financial crisis that began in 2008.

Many local governments set up special financing platforms that borrowed from banks to fund infrastructure projects, capitalizing these vehicles with the governments' land sales revenues while providing guarantees for them.

Sun Xihai, a member of the Jilin Provincial Committee of the Chinese People's Political Consultative Conference (CPPCC), told the annual provincial legislature meeting Tuesday that, in some cases, the debt ratio of the local government had exceeded the 200-percent warning line.

Sun noted that local government officials were found to have over-borrowed to finance unnecessary infrastructure projects that are being undertaken only to impress higher-ranking officials.

Sun suggested the local legislature initiate hearings of projects that are funded by the government's financing vehicles and investigate irregularities in government borrowing going back to 2008.

China rolled out a $586-billion economic stimulus package in late 2008, and local governments also stepped up investment to bolster economic expansion.

Data from China's Banking Regulatory Commission show that local government debts hit 7.66 trillion yuan ($1.14 trillion) in June 2010. Financial officials have said these debt risks are manageable but deserve close attention.