China's local government debt reaches US$1.65 tln

By Kim Young-gyo
HONG KONG (Yonhap) - China's local governments have piled up debt worth 10.7 trillion yuan (US$1.65 trillion) as of the end of 2010, the state auditor said Monday, indicating Beijing could face some defaulting risks.
The Chinese National Audit Office released the result of its first ever audit of local government debt, which was equivalent to 27 percent of the country's 2010 gross domestic product (GDP) estimated to be 39.8 trillion yuan.
The figure was larger than current 6 trillion yuan of the outstanding bonds issued by China's central government.
By sources of funding, bank loans accounted for nearly 80 percent, topping 8.5 trillion yuan, nearly 70 percent of which were due to mature within the next five years.
Out of the total proceeds, 62 percent were used for infrastructure investment, while land purchases accounted for 11 percent.
Fears have recently been growing in China over local governments, which have been excessively borrowing to fund infrastructure and other projects.
The size of local government-level debt was not as big as many experts had speculated, analysts said.
"Standing at 27 percent of national GDP, it is still manageable," said Qu Hongbin, chief China economist at HSBC.
"That said, Beijing needs to take immediate action restructure these debts to mitigate defaulting risks."
Qu warned that banks could face a real risk of defaulting in the coming years if the central government does not act soon.