China probe of local government debt exposing deeper liabilities than reported - Yicai Global

According to Yicai Global, a Chinese government probe into local government debt piles is exposing significantly worse exposures than previously reported.

Key highlights

China's finance ministry is overhauling local governments' hidden liabilities to rein in risks of insolvency. Some regions have come out with numbers that triple their levels of debt. They, and others will have to sort out their finances in 10 years. 

For this year, the central government will set up a cumulative debt ceiling to CNY21 trillion (USD3 trillion) to curb risks. 

The ministry has ordered local governments to clean up their balance sheets in 10 years by paying back with government funds, selling equity or state-owned assets, Zhang Yu, a specialist at the China Public Private Partnerships Center who started dealing with the data last month, told Yicai Global. “This is a very effective measure to strictly curb implicit debts," the official at the agency under the MOF added. 

Hidden debts in these seven locations range from 30 percent to up to 360 percent of their explicit debts. In five regions, hidden debts surpass the published levels of dues, and in two of the locales, the probe has revealed liabilities that are three times their published levels of debt.