August 13, 2013 / 6:14 AM / 6 years ago

China's Jiangsu province calls $126 billion bank debt manageable: paper

BEIJING (Reuters) - Government debt in China’s eastern Jiangsu province is under control and at an manageable and “appropriate” level for its economy, a Chinese newspaper on Tuesday quoted a senior local official as saying.

Workers walk at a demolished quarter at an abandoned steel plant in Wuxi, Jiangsu province September 26, 2012. REUTERS/Aly Song

The report in the 21st Century Business Herald contained the first public comment from an official in Jiangsu since Reuters in July reported that it may be the “standout debt risk” among China’s 31 provinces.

Tuesday’s newspaper report, citing unidentified sources, said outstanding bank loans of 752 local government financing vehicles in Jiangsu reached 770.6 billion yuan ($125.87 billion) by the end of June, up 2.7 percent from the beginning of this year.

Aside from bank loans, Jiangsu government financing vehicles have also raised a total of 576.8 billion yuan via alternative channels such as wealth management and trust products by June, according to the paper. In the first six months of 2013, local authorities borrowed 135.4 billion yuan through these channels, it said, without citing sources.

“The debt scale of Jiangsu province is matched by the size of its economy and supported by real demand, and the level is appropriate,” Liu Handong, head of the Jiangsu Provincial Department of Finance, was quoted by the Guangdong-based paper as saying.

“The risks of local government debt in Jiangsu are manageable,” Liu said.

China’s local government debt is among the biggest threats to its economy as the credit mostly funded the building of public infrastructure, which yield low financial returns. Poor government disclosure on debt levels have further aggravated concerns about the true size of China’s bad debt risks.

In its July 25 report, Reuters said that there were particular concerns about debt levels in Jiangsu, north of Shanghai, because of its rampant fund-raising through bonds and investment trusts.

The 21st Century Business Herald said that the Jiangsu government last week instructed local authorities to restrain the increase in 2014 debt levels to less than the rate of economic growth.

China’s budget law forbids local governments from taking on debt directly, but localities have borrowed trillions of yuan through investment firms known as local government financing vehicles.

Concerns have grown that the debts incurred could sour as many infrastructure projects in China are for public use and not profitable. Many local governments have also borrowed in private arrangements at high cost, with the money often used in speculative real estate projects.

($1 = 6.1223 Chinese yuan)

Reporting by Xiaoyi Shao and Koh Gui Qing; Editing by Richard Borsuk

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