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Local government debt poses no immediate threat

By Peter Pak (HK Edition)

Local government debt has been a hot topic both in Hong Kong and the mainland recently, with concerns about asset quality weighing on sentiment for Hong Kong-listed mainland banks.

I believe the default risk will largely depend on macro economic policies and the development in the property market. As long as local government financing vehicles (LGFVs) are able to secure new funds through credit or bonds, there is relatively little chance LGFVs will turn bad in large numbers.

In fact, we have conducted a thorough analysis of the underlying problem and I would like to share some of the findings here:

First of all, the actual amount or scale of local government debt has always been mysterious as different sources show vastly different figures.

The most authoritative is the Audit Commission's National Audit of Local Government Debt, according to which the debt balance of local governments nationwide stood at 10.72 trillion yuan at end-2010, and of which bank loans accounted for 8.47 trillion yuan ($1.66 trillion) or 79 percent.

In addition, the People's Bank of China (PBoC) elaborated on LGFV loans in its 2010 China Regional Financial Performance Report. While not providing any balances, it did mention that there were more than 10,000 such vehicles being monitored (Meanwhile, the Audit Commission indicated that there are 6,576 vehicles in total). The PBoC report also states that "LGFV loans make up less than 30 percent of all yuan loans".

Given the different sources for the statistics, we estimate that the balance of LGFV loans by the PBoC may be higher than that mentioned in the Audit Commission report.

According to a meeting conducted by the China Banking Regulatory Commission (CBRC) last year, the total balance of LGFV loans stood at 7.66 trillion yuan as of June 2010. Some media reports have quoted the CBRC as saying that the balance stood at 9 trillion to 10 trillion yuan as of end-2010. In addition, all listed banks have made public their LGFV loan balances.

Based on their disclosures, the proportion of LGFV loans to total loans amounted to 8.4 percent as of end-2010. Seeing National Development Bank as the main forces behind LGFVs, we estimate a total balance of 8 trillion to 9 trillion yuan.

However, a major weakness of the statistics is that banks all have differences in terms of LGFV loan classifications, so these statistics may underestimate the actual figures. After considering various sources, we estimate the LGFV loan balance at between 8 trillion and 10 trillion yuan.

Taking into account other forms of local government debt, we put the overall debt balance in a range of between 10.3 trillion and 12.3 trillion yuan.

Based on the assumption of a 10.3 trillion-12.3 trillion yuan local government debt balance, the debt burden of the central government was around 6.7 trillion yuan in 2010. As such, the overall government debt balance would have been 17 trillion-19 trillion yuan. China's 2010 GDP stood at 39.8 trillion yuan, implying that the nation's debt ratio was around 45.2 percent of GDP. Based on the 60 percent standard of the European Union, China's debt ratio remains at a manageable level.

In addition, according to the Audit Commission's report, the local government debt ratio stood at 70.45 percent at end-2010. Also, at end-2010, 1.1 trillion yuan was yet to be spent, putting actual debt expenditures at 9.6 trillion yuan.

Of this, the debt the government bears responsibility for repaying is only 5.88 trillion yuan, and the overall strength of local government finances (including revenue at the local level, central government transfer payments and revenue form land use transfer) amounted to 10.9 trillion yuan, putting the debt ratio at 53.9 percent.



The author is Executive Director at BOCI Research Ltd. The opinions expressed here are entirely his own and do not represent BOCI or any other affiliated companies within the group. Nothing in this article constitutes an investment recommendation.

(HK Edition 07/20/2011 page2)

来源：http://www.chinadaily.com.cn/hkedition/2011-07/20/content_12938688.htm

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关键词：follow HAC LOW Expenditures Development follow

af first ,i do some translation
local government financing vehicles (LGFVs)  地方ZF融资机制
Audit Commission  审计署

Local government debt poses no immediate threat
地方ZF债务不会构成直接的威胁

I believe the default risk will largely depend on macro economic policies and the development in the property market.
我认为地方ZF债务违约很大程度取决于宏观经济政策和房地产市场的发展

the actual amount or scale of local government debt has always been mysterious as different sources show vastly different figures.
不同来源的显示数据千差万别导致地方债的真实数量或规模一直都很神秘

banks all have differences in terms of LGFV loan classifications, so these statistics may underestimate the actual figures.
银行在LGFV贷款分级上存在的差异，因此这些数据可能会低估了真实的数据

China's debt ratio remains at a manageable level.
中国的负债率保持在一个可控的水平上


debt ratio at 53.9 percent. 资产负债率为53.9%


this artical showed us the concern about Local government debt , whether Local government debt will default or not largely depend on macro economic policies and the development in the property market .that's ture .loose macro economic policies will make local government raise debts easily , and large amount of local government revenue comes from the property market . if these tow foundations do not change ,the likelihood of default is very small .

but the underlying problem is the actual amount or scale of local government debt has always been mysterious as different sources show vastly different figures. local government debt lacks of transparency , it will increase market uncertainty,any opaqueness would harm the confidence of investors. in addition ,there is very likely the mount of local government debt is much higher than the report statistics , the reason has been said in this artical . though China's debt ratio remains at a manageable level.based on the 60 percent standard of the European Union, but the authorities concernd can not be reliable . thus , china must establish transparency and perfect local government financing vehicles , and authorities concernd  also must establish authority , only by this way can chinese local government creditors have confidence on it . furthermore，local government guarantee mechanism should be changed

       LGFV地方ZF融资机制
       CBRC 中国银监会
       thorough adj. 彻底的；十分的；周密的
       authoritative adj. 有权威的；命令式的；当局的
       elaborated on 详细说明
      disclosures n. [审计] 披露；揭发；被揭发出来的事情
      This article is about Local government debt which is a hot topic recently
      This article proposes that the debt balance of local governments nationwide stood at 10.72 trillion yuan at end-2010, according to the Audit Commission's National Audit of Local Government Debt, Also, 1.1 trillion yuan was yet to be spent, putting actual debt expenditures at 9.6 trillion yuan. the overall government debt balance would have been 17 trillion-19 trillion yuan. China's 2010 GDP stood at 39.8 trillion yuan, implying that the nation's debt ratio was around 45.2 percent of GDP.
      As a conclusion, China's debt ratio remains at a manageable level.
    以上是文章总结。不过国家审计没有展现出地方ZF债务的完整规模，只限定于得到明确担保的贷款。如果加上国有企业及国家隐性支持的其它实体账目上的债务，ZF背负的或有债务将高得多。其实地方ZF不是那么担心它的债务，一是有中央ZF在背后支撑，二是必要时候，它会运用权力逼迫其管辖地区的银行对贷款进行减免，银行来消化一部分债务。

Local govt debt is a major concern of Chinese economy today. As the statistics carried out by Chinese authority is not very reliable, the problem of uncertainty would be more serious. I hope the govt itself should know the exact data of the loval debt, though you can hide the data from us. The worst case is the govt itself believes in the wrong data. Transparency is very important in the case of the financial market. Any opaqueness would harm the confidence of investors.

还是谨慎点好,Based on the assumption of a 10.3 trillion-12.3 trillion yuan local government debt balance, the debt burden of the central government was around 6.7 trillion yuan in 2010. As such, the overall government debt balance would have been 17 trillion-19 trillion yuan. China's 2010 GDP stood at 39.8 trillion yuan, implying that the nation's debt ratio was around 45.2 percent of GDP. Based on the 60 percent standard of the European Union, China's debt ratio remains at a manageable level.

It is a great news if China's debt ratio remains at a manageable level.

74，74China's debt radio remains a managable lever.Currently,it is impossible for China to appear the risk of the Eurpean debt

I believe the default risk will largely depend on macro economic policies and the development in the property market.

Local government debt problem has been around for years. The 10.72 trillion yuan is not a small, and 80 percent of it comes from bank. It is high time that government accelerated the comprehensive management of local governments' debts, in order to avoid these debts being transformed into a debt crisis or bank crisis,some scholars think that the key to solving the problem is to further deepen reform of the tax system。

I hope it is well solved and I think gov will manage it in whatever way.