China’s Top Auditor Warns of New Local Government Debt Problems

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There has been progress in tackling local government debt, but new risks have emerged, the National Audit Office said in an annual report. Photo: VCG

China has seen “phased” progress in local government debt resolution efforts as the Politburo called for a package of debt-relief measures in July last year, but illegal borrowing has continued and overdue payments to businesses have grown, the country’s top audit watchdog said in a report Tuesday.

Although the overall risks stemming from local government debt in 19 provinces and cities were manageable, new dangers emerged, the National Audit Office (NAO) wrote in its report on the implementation of the 2023 fiscal budget. The report included a more detailed audit of the provinces and cities.

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China has made phased progress in local government debt resolution but still faces issues with illegal borrowing and growing overdue payments.
Illegal fundraising by state-owned enterprises led to outstanding debts of 37.3 billion yuan, with implicit government debt of nearly 11.3 billion yuan.
The NAO report highlighted inefficiencies and misappropriation in special-purpose bonds, totaling 28 billion yuan in idle funds, and proposed better allocation toward efficient projects.

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What Happened When

March to December 2023：: 56 regions in 10 provinces and cities added new arrears of 7.6 billion yuan.

July 2023：: The Politburo called for a package of debt-relief measures.

September 2023：: The State Council approved a special action plan to tackle overdue payments to companies.

Late 2023：: The central government ordered the closure of regional financial asset exchanges as part of a regulatory effort to stamp out illegal fundraising.

End of 2023：: Outstanding debt related to illegal financial products issued on local financial asset exchanges amounted to 37.3 billion yuan, forming implicit government debt of nearly 11.3 billion yuan.

End of 2023：: Around 28 billion yuan raised through SPBs for 522 projects was idle or had been misappropriated.

End of 2023：: Nearly 600 projects funded by SPB proceeds had secured some 601 billion yuan in government investment, with little private capital involved.

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