'Fiscal Cliff' for Chinese Local Governments... Debt List Disclosure 'Debt Collection'

Wuhan City Lists 259 Companies, Urges Repayment

As the financial deterioration of local governments is emerging as a structural problem in China, the Wuhan city government has publicly demanded debt repayment from companies. Wuhan, the city where COVID-19 was first discovered, is known to have experienced significant financial deterioration due to astronomical control costs from the early stages of the outbreak until recently.

According to the Hong Kong South China Morning Post (SCMP) on the 28th, the Wuhan Municipal Finance Bureau recently disclosed a detailed list of 259 companies, including some state-owned enterprises, along with their outstanding debt amounts as of December 2018 to the Changjiang Daily.

[Image source=Reuters Yonhap News]

The list published in the Changjiang Daily shows that the total debt amounts to approximately 300 million yuan (about 56.3 billion KRW), with individual company debts ranging from a minimum of 10,000 yuan to a maximum of 23 million yuan. SCMP evaluated that this unusual disclosure by the city government is closely related to the financial difficulties caused by zero-COVID control costs over the past three years.

According to Goldman Sachs, including thousands of hidden borrowings from financial companies established by local governments, China's total government debt is estimated at about 23 trillion dollars (approximately 3 quadrillion KRW). According to the city government's announcement, Wuhan's tax revenue in the first quarter of this year decreased by 8.5% compared to the same period last year, indicating ongoing economic recession.

The recently disclosed debtor list includes state-owned enterprises, private companies, research institutions, and local finance bureaus of the city. Automobile company A had the largest debt amounting to 23.54 million yuan, followed by debts of 20 million yuan and 15 million yuan respectively. The well-known food company Tongil Enterprise, which owes 10 million yuan, was also listed. The district-level finance bureaus within Wuhan had debts ranging from 500,000 to 12.52 million yuan, with Jiangxia District having the largest debt.

In a public statement, the Wuhan city government said, "Various methods have been employed to notify debtors of the amounts owed and to recover the debts, but the debtors and guarantors mentioned below have yet to repay their debts." It added, "The debtors, guarantors, and debt successors listed below are requested to fulfill their debt repayment obligations immediately upon the date of this announcement."

Given that China's recent economic indicators are losing recovery momentum, it seems unlikely that local government finances will improve easily. According to data released by the National Bureau of Statistics of China on the 27th, profits of industrial sector companies in China from January to April decreased by 20.6% compared to the same period last year.