Beijing’s official figures for local government debt – 16.5 trillion yuan (US$2.6 trillion) as of the end of last year – could be underestimates, with many government liabilities disguised as corporate debt.
Yin said internal government assessments put the size of “hidden and disguised” local government debt at “at least 20 trillion”, making China’s official figure less than half of the real total. Yin also said the percentage of non-performing loans in China’s banking system at the end of last year was much higher than the official 1.74 per cent because banks often rolled over problematic loans or hid risky debts. Yin said the cause of the country’s debt problem was excessive printing of money in the past decade, with the amount in circulation quadrupling between 2007 to 2017 to 168 trillion yuan, or over 200 per cent of China’s nominal GDP. “It is like a river hanging over our heads – if there’s a leak, it will drown us,” he said. Yin, whose seat on the NPC Standing Committee authorises him to question ministers on economic policy, said the debt problem was too big and widespread to be solved quickly. “As the Chinese saying goes, sickness descends like a landslide, but goes away slowly like spinning silk,” he said. Yin’s outlook is less optimistic than the official view – outgoing central bank chief Zhou Xiaochuan insisted this week that China had brought its debt problem under control because the money supply rate was lower.
Yin said the local government debt situation “is even more dangerous than before because they [liabilities] have been covered up” in forms such as equity investment, government service procurement, public-private partnership projects and state-owned enterprise debt.
“This is actually debt incurred by local governments, and they will eventually default.” The assessment gives a glimpse of the concerns at the top about financial risk, a priority Chinese President Xi Jinping has set for the coming years. “There are many risks, but the focus is on financial risk. Financial risk is the biggest risk and can lead to the worst possible result,” Yin said. “When we are talking about systemic risks, we are talking about financial risks; when we are talking about preventing risks, we mean a financial crisis must be avoided.” Zhou also said the country was drafting rules to clip the wings of financial holding groups spanning banking, securities and insurance. Yin said financial conglomerates with various financial business licenses, which have both online and offline operations, would be targeted and Beijing was finding ways to assess their underlying assets, from property to forex market positions