Caixin
Oct 28, 2021 04:08 AM
ECONOMY

Four Local Governments Violated Debt Policy on Eight Projects, Audit Finds

What’s new: Four local governments with high debt risk violated rules in construction of government buildings, hotels and convention centers, China’s State Council found in an audit of local governments’ spending.

A rule implemented in 2017 banned local governments and organizations from building venues and facilities with accommodation, conference, catering and other reception functions. With local government debt rising, the central government ordered local governments with high debt levels to vigorously reduce operating expenses of government offices and outlays for construction.

The audit found eight projects in violation of the policy. They were identified as the Qinghai International Convention Center, the Qinghai Human Resource and Social Security Public Service Center, the Qinghai Victory Hotel, the Ningxia Minning Convention Center, the Ningxia Minning Hotel Management and Service Professional Training Center, the Ningxia Silk Road Mingzhu Tower, the Guizhou Zunyi Convention Center, and the Yunnan Provincial Democratic Party Building and Yunnan Zhonghua Vocational Education Association Office Building, according to a State Council notice Wednesday.

From 2018 to 2020, Qinghai province allocated nearly 90 million yuan ($14.1 million) of fiscal funding to build and operate the Victory Hotel. The Yinchuan municipal government and Minning town government spent 55 million yuan to build the convention center, the audit found.

Some local governments have actively carried out rectification work by stopping project constriction or transferring them through public auctions, the State Council said. Some project operators returned fiscal funding to the governments.

The background: Local government debt has ballooned in spite of the top leadership’s pledges to rein in liabilities as part of a broader campaign to deleverage the economy.

Outstanding local government debt totaled 25.7 trillion yuan at the end of 2020, up from 21.3 trillion yuan at the end of 2019, 18.4 trillion yuan at the end of 2018 and 16.5 trillion yuan at the end of 2017. The government didn’t give a forecast for this year’s increase but said it set a ceiling of 33.3 trillion yuan for outstanding local government debt.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (hello@caixin.com)

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