Bringing Debt Down
A nationwide audit raises alarms over risks from local government debts
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Editor's Desk
Print Edition> Editor's Desk
UPDATED: January 13, 2014 NO. 3 JANUARY 16, 2014
Debt Risk Under Control

China's National Audit Office (NAO) recently issued a report on the debt held by the Central Government. The report not only increased China's economic transparency, but has also made it clear whether or not there are risks on governments defaulting on any existing debts.

The NAO's statistics shows that China's government debts are not serious enough to trigger panic in the market, as they are yet to cross the warning line, meaning that they are still controllable.

During August and September 2013, 54,400 auditors around the country conducted a detailed survey of government debts from the Central Government level all the way down to the community level. The auditing results showed that China's government debts are mainly from road and bridge building, urban construction, affordable housing, as well as other economic and social development programs. This differs from some countries' government debts, which are mainly consumption expenditures. More importantly, most of China's government debt is backed up by assets and revenues.

The NAO performed an analysis of China's government debts held at the end of 2012. The result of the analysis shows that all the risk indexes are under control in accordance with international standards.

Making the government's debt situation clear and transparent to the public shows the government's sense of responsibility and its resolve in sticking to the truth. Moreover, by doing so, the government will find it easier to make scientific judgments and prevent debt risks.

But the NAO's report also shows that local governments' debts are much higher than in the auditing result of June 2011. Particularly, the debts local governments are liable to pay off is increasing fast, up by 20 percent every year on average, far higher than the growth rate of the country's GDP. This means the government must implement effective control over government debts and cannot let the debts increase freely.

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