Local debt accounting made messy by unclear numbers in China
All provinces in China, except for Jiangsu and Shandong, have met the Jan. 5 deadline to submit reports classifying all local borrowings within their borders, including those of local government financing vehicles, to the Ministry of Finance for verification and confirmation, our Chinese-langguage sister paper the China Times reports.The data on local debt inventories will not be publicized to avoid affecting local governments’ borrowing capability in the future and to avoid any media hype, an unnamed financial official said.
A key problem related to the reports lies in the vastly different debt figures provided by the local government financing vehicles and those confirmed by these governments. “The debt amount confirmed by the provincial government was only one-third of the amount we reported,” said Zhang Tao, the head of a financing company operating in a county in the Jiangsu province. He added that the company had submitted a report of debt incurred by the county to the provincial government several times, but it was sent back each time.
This is why the Jiangsu province was unable tosubmit its report on time, Zhang said, adding that the province is scheduled to submit its report on Jan. 10.
A senior executive at another city-level financing company in Jiangsu said that the amounts reported by low-level local government financing vehicles have frequently been cut by provincial governments. The executive also cast doubts on whether the central government has a thorough understanding of the actual local debt situation.
A major characteristic of the compilation this time is the categorizing of local financing companies’ debts into government and corporate debts to prevent local debts from seeing disorderly expansion and to get these debts better regulated and under control, Central University of Finance and Economics Professor Wen Laicheng said.
However, the huge discrepancies in debt figures stem from a lack of clear accounting standards for measuring the sizes of local debt inventories, said Liu Shangxi, deputy director of the Finance Division of the Ministry of Finance, adding that the definitions of debts directly incurred by local governments or that may be incurred by these governments are ambiguous.
Wen said that the debt figures reported by the local governments’ affiliated financing companies will not be fully accepted by these governments as these could affect their future plans to issue local debts.
The central administration announced late last year that it will impose hard caps on local government borrowing in an effort to control financial risks from an explosive rise in regional debt, according to the report.