China orders government debt audit amid economic slowdown

08:56 • 29.07.13
Economy

China has ordered a nationwide audit of all government debt, underlining fears that the recent slowdown in its economy may impact the financial sector, BBC News reported.


Local governments in the country borrowed heavily after the global financial crisis to try to sustain growth rates.


The last audit, published in 2011, showed they had debt of 10.7tn yuan ($1.7tn; £1.1tn) by the end of 2010.


Debt may threaten China's growth, and there are growing fears that local governments may not be able repay.


"In line with a request of the State Council, the National Audit Office (NAO) will organize auditing agencies across the country to carry out an audit of government debt," the national auditor said in a statement on its website.


The NAO said that it had halted all other projects to conduct the audit, but did not give any other details or a timeline for the audit.
A large part of the local government borrowings were taken up after the global financial crisis as Chinese authorities released a 4tn yuan fiscal stimulus.


According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010.


Some of the borrowings were spent on infrastructure projects, such as road and rail - seen as vital to sustain orderly economic development - but some of it also went into property construction.


There have long been fears that the projects may not be financially viable in the long run.


"A lot of the projects that were invested in will not have the kind of returns that they had initially estimated," said Dariusz Kowalczyk, senior economist with Credit Agricole-CIB in Hong Kong.


"That coupled with slowing growth means that the finances of the local governments may not look too good."
 

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