Date
18 August 2017
China Cities Value Land At Winnetka Prices With Bonds Seen Toxic

The Big Picture: MOUNTING LOCAL DEBT

Local government debts in China amounted to 17.89 trillion yuan (US$2.95 trillion) as of the end of June, with 10.89 trillion yuan of direct debt and 7 trillion yuan of contingent liabilities, the National Audit Office (NAO) said on Monday.

Of the contingent liabilities, 2.67 trillion yuan are liabilities guaranteed by the local governments while 4.34 trillion yuan are assumed liabilities, the NAO said in a statement, citing a nationwide audit conducted in August and September. At the end of 2012, local governments’ guarantee liabilities totaled 2.77 trillion yuan while assumed liabilities were 5.93 trillion yuan.

Of the direct debt, 22.92 percent would have matured in the second half of 2013 while 21.89 percent will mature in 2014, it said. About 16.9 percent of all the outstanding contingent liabilities will mature next year, it said.

At the end of June, the central government recorded a direct debt of 9.81 trillion yuan and an additional 2.57 trillion yuan of contingent liabilities, 2.29 trillion yuan of which came from China Railway Corp.

China’s local debt problem is manageable as the total direct debt of the central and local governments was about 36.74 percent of the nation’s gross domestic product at the end of 2012, NAO spokesperson Chen Chenzhao {陳塵肇} said in separate statement on the auditor’s website.

Even if the contingent liabilities that need to be paid by fiscal resources are included, the ratio would only be about 39.43 percent, which is lower than the 60 percent level of the international benchmark, Chen said.

Most investors tend to take a more cautious view about the situation than Chinese officials, amid fears that some local debt may go into default under severe situations, such as potential huge capital outflow or a slump in domestic property prices. Observers also note that there appears to be no resolution to the problems in lower-tier cities and counties that have over-borrowed over the last five years. 

Given the concerns, the local debt problems will continue to cast a shadow on the performance of Chinese banks on the stock market.

Shenzhen bourse gets tough on firms faking IPO info

Shenzhen-listed firms that provide false listing information will have to buy back all of their initial public offering shares and assume legal responsibilities, the Securities Times reported Monday, citing new exchange guidelines on the content of IPO filings. In addition, underwriters and accounting firms involved have to promise to compensate investors for any losses stemming from IPO documents that contain fake, misleading or insufficient content, the report said.

China outbound FDI this year seen at US$90 bln

China’s outbound foreign direct investment is forecast to reach US$90 billion this year, with even greater prospects for growth, the China Securities Journal reported Tuesday, citing Wang Yiming, deputy director of the National Development and Reform Commission’s Macroeconomic Research Institute. Wang said there are four ways to boost investments: through mergers and acquisitions, relocating low value-added chains, increasing support for energy and resource use, and investment to enlarge markets such as telecom and high-speed rail. 

–Contact HKEJ at [email protected]

JP/MY/RC

 

EJI Weekly Newsletter

Please click here to unsubscribe