BOFIT Weekly Review 2015/37
New figures on Chinese local government debt
Chinese officials report that the total amount of local government debt at the end of 2014 amounted to 15.4 trillion yuan (€2.3 trillion), or about 25 % of GDP. The new number is slightly lower than the official estimate released this spring. A full set of figures on local government indebtedness was last released in June 2013, when the overall debt figure was estimated to be around 10.9 trillion yuan.
The debt stock has risen 40 % over the past 18 months. Part of the increase reflects a reclassification of loans guaranteed by a local government as direct local government debt. In addition local governments are indirectly liable for loans they have guaranteed. The value of loan guarantees was put at 8.6 trillion yuan (€1.3 trillion), or 23 % more than in July 2013. Loans and guarantee obligations totalled around 25 trillion yuan (€3.5 trillion).
The government has turned to the bond markets for solutions to the debt problems of local governments. Under the latest guidelines, local governments are allowed this year to issue bonds worth up to 3.2 trillion yuan to refinance their existing credit obligations. Local governments have also been given the option of issuing new debt in the amount of 600 billion yuan. The ceiling on local government debt was raised this year to 16 trillion yuan.
Local governments have so far this year issued 1.4 trillion yuan in their own bonds. These issues have largely been met with low investor enthusiasm due to their modest yields. Regulatory officials are again allowing local governments to borrow via external off-budget financial vehicles for certain types of financing. Policy banks have also begun to assist local governments in financing their infrastructure projects through directed bond issues.