[News Terms] China’s 'Off-Balance Sheet Debt' at 1,440 Trillion Won

'Buwuibuchaeg (簿外負債)' refers to debts that a company or country must repay in the future but are not recorded as liabilities on the balance sheet. Simply put, it is debt not recorded in the books. It can be called 'shadow liabilities' that do not appear in official data such as balance sheets.

In English, it is expressed as unrecorded liability or liabilities out of books, and it is also called 'off balance sheet financing,' meaning funds were raised without recording them in the books.

Buwuibuchaeg may arise from the accountant's ignorance or mistakes in accounting, but often it is deliberately concealed to falsify the deteriorated financial condition and business performance of a company or country. Such actions are highly likely to cause significant harm to users of financial statements.

The Wall Street Journal (WSJ) reported on the 5th (local time) that the Chinese government's shadow debt, which is not captured in official statistics, is estimated to be around $7 trillion to $11 trillion (approximately 9,100 trillion to 14,400 trillion won).

In fact, most bankrupt companies have been found to have large amounts of buwuibuchaeg not recorded in the books, such as unpaid accounts payable to business partners or debts borrowed from the bond market. Therefore, whether due to ignorance, mistakes, or intent, failing to record liabilities in the books is improper accounting treatment.

The Wall Street Journal (WSJ) reported on the 5th (local time) that the shadow debt of the Chinese government, which is not captured in official statistics, is estimated to be about $7 trillion to $11 trillion (approximately 9,100 trillion to 14,400 trillion KRW).

WSJ introduced the total scale of China's government 'buwuibuchaeg' estimated by the International Monetary Fund (IMF) and Wall Street banks, stating that economists also view that "among the hidden debts, $400 billion (about 524 trillion KRW) to over $800 billion (about 1,050 trillion KRW) are particularly problematic and exposed to default risk."

According to the newspaper, Chinese cities and local governments have accumulated massive amounts of hidden debt over several years through unverified borrowing and spending. This includes debts such as corporate bonds issued by thousands of special purpose vehicles for financing called 'LGFV (local government financing vehicles),' which borrow money to fund infrastructure construction including roads and bridges or other expenditures.

The newspaper reported that no one knows the exact total amount of China's buwuibuchaeg, but it is clear that local government debt has become unsustainable over the past year. The Chinese central government also stated in November that "preventing and resolving the hidden debt risks of local governments is very important" and has begun preparing countermeasures.

The newspaper viewed that the international credit rating agency Moody's downgrade of China's national credit rating outlook from 'stable' to 'negative' the day before is largely related to the debt problems of Chinese local governments. This is because there is a high possibility that China will provide more support to financially troubled local governments and state-owned enterprises.