China Criticizes Local Governments for Revealing Representative Cases of 'Hidden Debt'

Amid estimates that the 'hidden debt' of Chinese local governments, which is not captured in official statistics, exceeds 50% of the Gross Domestic Product (GDP), Chinese authorities publicly criticized representative cases of related debt and urged local governments to exercise self-reflection.

[Image source=Yonhap News]

On the 6th (local time), the Chinese Ministry of Finance posted on its website a "Notice on Typical Cases of Accountability for Hidden Debt of Local Governments," stating, "In recent years, the Ministry of Finance has investigated and punished illegal and irregular acts such as new hidden debt and poor debt resolution," and announced eight cases handled since last year.

The eight reported cases included examples from some areas in Hubei Province, Liuzhou City in Guangxi Zhuang Autonomous Region, Xi'an City in Shanxi Province, Xuchang City in Henan Province, Chengdu City in Sichuan Province, Jingdezhen City in Jiangxi Province, and local branches of the Agricultural Development Bank of China and the Agricultural Bank of China.

For instance, in Hubei Province, since 2008, contracts were made with three state-owned enterprises within the province, under which if the enterprises developed land, the local government would use land income to return costs and profits to the enterprises. Chinese authorities reported that this led to hidden debt of 21.48 billion yuan (approximately 3.8 trillion won) between August 2018 and June 2021, and all financial officials of the related local governments were held accountable.

The Ministry of Finance emphasized that this announcement aims to "firmly curb the increase of hidden debt, strictly enforce fiscal discipline, and serve as a warning and educational role."

Meanwhile, Chinese local governments have rapidly increased their debt amid massive epidemic prevention expenditures due to the three-year 'Zero COVID' policy, excessive infrastructure investments over several years, and a downturn in the real estate market. In particular, the money borrowed by local governments through special entities called 'LGFV' (local government financing vehicles) is hidden debt not recorded in official statistics. The International Monetary Fund (IMF) has estimated that such debt could reach 53% of China's GDP this year.