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SHENYANG - With the implementation of a policy to create more sustainable economic growth as set by the Chinese central government, the country's three northeast provinces, where the old industrial bases are located, may encounter multiple challenges during this economic shift.
China's top auditing authority has released a report on local governments' debts which warns that some local governments have taken on dangerous loans that they cannot repay based upon their incoming fiscal revenues.
According to statistics from the National Development and Reform Commission in the first quarter of this year, northeast Liaoning, Jilin and Heilongjiang provinces had reached a total of 685.85 billion yuan ($100.86 billion) in their regional gross domestic product (GDP), a 15.4 percent increase year-on-year.
The general budgetary revenue of the three provinces in the first quarter had also reached 44.9 billion, 14.24 billion and 25.32 billion yuan. However, the three provinces spent a total of 134.61 billion yuan in the same period investing in their fixed assets, an expenditure that required borrowing money from financial institutions.
However, local governments are prohibited from using their revenues and assets to guarantee loans from banks and other financial institutions.
But analysts say that illegal practices to guarantee local governments' loans by using revenues are common and even frequent, especially in some regions of the three provinces.
"Local governments' debts are a huge risk under the situation that China has no system for bankruptcy of government," said Lin Muxi, Dean of the School of Economy, Liaoning University.