The warning by China’s National Audit Bureau local debts are a risk for the country, is a step forward, says political and financial analyst Victor Shih to the New York Times. Until Monday those local debts were kept under wraps. But it is only the beginning of a solution.
The New York Times:
Victor Shih, a professor of political economy at Northwestern University in Illinois and one of the first to warn about a sharp rise in local government debt in China, said Monday that the recent surveys were progress because local governments had tried to keep much of their borrowing secret.
“It’s a significant step for them to release these numbers,” he said in a telephone interview. “But I think the problem is much, much bigger.”
Mr. Shih and other analysts say local governments create their own investment companies to borrow from state banks to finance infrastructure projects. And because much of that borrowing is done off the government balance sheet, often using government land or assets as collateral, it is hard to track and assess.
Often, though, the projects, which include roads, bridges, tunnels and subway systems, do not generate enough earnings to repay the loans.
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