Hidden Debt of Chinese Local Government Could Be as High as $5.8 Trillion: S&P


A new report from S&P Global Ratings says the hidden debt of China’s local governments could be as high as 40 trillion yuan (approx. USD$5.78 trillion).

According to the report these off-balance sheet borrowings by local governments are a “debt iceberg with titanic credit risks,” and bring the ratio of government debt to gross domestic product in China to the “alarming” level of 60% for 2017.

S&P expects it to take at least a decade to deal with the issue of hidden local government debt in China.

China has placed heavy emphasis upon containing the debt levels – and in particular the hidden debt levels – of the country’s local governments in 2018.

Beijing issued a directive to local governments to tackle their hidden debt piles back in August, and unveiled plans to launch a debt monitoring system in September.

Concerns over the impact of ongoing Sino-US trade tensions have prompted the Chinese government to dial back its deleveraging campaign however, and push for accelerated bond issuance in the second half as well as mull a cut in the risk weighting of local government bonds to zero.

S&P nonetheless believes that Beijing is still determined to pursue its deleveraging agenda.

“We believe China’s recent measures to stabilise growth and boost liquidity in response to internal and external headwinds aren’t necessarily a relaxation of its de-risking efforts,” said the report.

“Defusing financial risks, including the hidden local government debt, is one of three overarching priorities of the country’s top leadership.”

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