Moody's warns on China local government debt, financing vehicles
Agency says growing use of non-bank funding channels such as shadow banking not being recorded after tighter controls by Beijing
The ability of the mainland's local governments to repay their debt is being questioned, with analysts warning that the liabilities may be underestimated.
Increased use of irregular financing activities such as trust loans, leases, wealth-management products and project financing pose a risk to local government finances, Moody's analyst Debra Roane said in a report.
She said such funding from such channels was not being recorded as debt on the balance sheets of local government financing vehicles (LGFVs), adding "a further layer of complexity in determining an individual regional local government's debt level".
The National Audit Office said on June 10, a public holiday, that the debt of 36 local governments had risen 12.9 per cent to 3.85 trillion yuan (HK$4.9 trillion) in the two years to the end of 2012. LGFVs racked up 45.7 per cent of that new debt.
The audit office found that funding via non-bank channels increased rapidly as the central government tightened up on banks' lending to LGFVs.
The research said funds raised via trust loans, leases, sale-lease-back agreements and wealth-management products added up to 109 billion yuan in six provinces and seven prefecture-level cities. Total local government debt was 12.1 trillion yuan, according to the audit office's 2010 research.
Huatai Securities' analysts said in a research note that total debt could have reached 15.3 trillion yuan at the end of 2012 and may total 16.3 trillion yuan by the end of this year, considering local governments' contributions to national gross domestic product growth.
