Analysis: Transparency the crux in China's struggle to deal with rising debt

Tue Dec 31, 2013 4:25am EST
 
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By Koh Gui Qing

BEIJING (Reuters) - China's quest to solve its $3 trillion-and-growing public debt problem by starting a domestic municipal bond market hinges on the one thing its officials are most afraid of: transparency.

As markets absorb the results of China's latest audit of its state finances, Beijing's long-standing vow to develop a municipal bond market to curtail rapid growth in other types of hidden public debt will take centerstage once more.

By letting local governments sell bonds for cash, China wants to rely on nimble markets rather than inflexible regulations to keep spendthrift units in check.

The stakes are high. A bond market is the centerpiece in China's blueprint to mop up fiscal troubles and keep its economy growing at an even pace, giving it needed room to start other bold financial reforms.

But analysts say China's dreams of a municipal bond market are so far just that, as building one has been impeded by a lack of disclosure from local governments on how much money and assets they have, and how much they owe.

"If you want to lend to a specific government, you need to have a clue as to what the financial conditions are like," said Tan Kim Eng, a senior director of sovereign ratings at Standard & Poor's in Singapore.

"There's still a lot of work to be done on the fiscal transparency front."

INCREASING ALARM   Continued...

 
One-hundred Yuan notes are seen in this picture illustration in Beijing March 22, 2011. REUTERS/Jason Lee