Date
22 November 2017
In Hunan province, some local stores accept local government IOUs as payment for their products, although at discounted rates, while small traders buy and resell them. Photo: Xinhua
In Hunan province, some local stores accept local government IOUs as payment for their products, although at discounted rates, while small traders buy and resell them. Photo: Xinhua

Local govt IOUs used as currency in some Hunan towns

China’s township governments have been facing a serious debt crisis for years with many of them unable to continue operating without getting more credit, the Economic Information Daily reported on Tuesday.

At least 3,465 township governments, or administrative units below the provincial, city and county levels, have liability ratio of more than 100 percent, the report said, citing data from the National Audit Office.

In Hunan province, many of these governments have been issuing IOUs, informal documents acknowledging debt, to residents. Some local stores even accept these IOUs as payments for their products, although at discounted rates, while some small traders have started to buy and resell them, according to the newspaper.

At the end of June 2013, township governments in Hunan have racked up debts worth 11.49 billion yuan, while those in Hubei owed 19.42 billion. Across the nation, outstanding debts of township governments stood at 307.01 billion yuan. 

While carrying large amounts of old debts, these authorities also face risks from the failure of local government financing vehicles, the newspaper said, following visits to Hunan, Hubei and Guangdong provinces.

Guo Xuebing, head of the reform group in Hunan’s Taoyuan county and an experienced inspector of local government debt issues, said most of the township governments in these provinces don’t have the ability to repay debts so “they rely heavily on fiscal support from their county-level governments”.

An average of 40 percent local government debts in 2012 were repaid by income from land transfers, showing that the current slump in the property market has a significant impact on local debt issue, the report said.

The problem has been allowed to deteriorate due to the lack of strict regulations on township government budgets, qq.ocm reported, citing an unnamed analyst.

“How fiscal funds are spent, in most of the cases, depends just on the township leaders’ personal whims,” the analyst was quoted as saying.

In addition, the growth in gross domestic product has become the most important indicator in the assessment of local officials’ performance, encouraging them to continue borrowing to boost the GDP figure, the report said.

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