China's finances weaker than data show, IMF report says

The mainland's fiscal position is weaker than official data shows but not significant enough to cause alarm, the IMF said in a report released yesterday.

The International Monetary Fund also warned that the mainland was now "more vulnerable to a macroeconomic shock" because of its higher debt and bigger deficit.

It estimated that the mainland's augmented fiscal debt, which mainly refers to borrowing by local governments, rose to about 45 per cent of its 51.9 trillion yuan (HK$66.6 trillion) gross domestic product in 2012.

"The rise in augmented fiscal debt, however, is indicative of underlying challenges in local government finances," the report said.

The biggest challenge for the central government, it added, was setting up a better framework to manage and monitor local government borrowing in order to prevent the accumulation of additional risks and ensure adequate financing for priority social and infrastructure spending. Other challenges included reducing local governments' reliance on land sale revenues to pay off their debts.

Local government borrowing shot up between 2008 and 2010 as the central government implemented a massive stimulus package to ward off the impact of the global financial crisis. However, some local governments have been unable to repay their debts.