China’s local governments have racked up around US$1.65 trillion in debt – equal to 27% of China’s GDP last year – the country’s National Audit Office said Monday, the Wall Street Journal reported. The first-ever audit of such debt is raising concerns that banks could face an onslaught of bad loans as Beijing battles inflation. Much of the local government debt was incurred during China’s two-year stimulus spending, which the central government used to battle the effects of the global economic downturn. The figure also affirms analysts’ belief that the true level of China’s debt is higher than the Finance Ministry’s calculations, which claim that central government debt is 17% of GDP, before local debt is included. Given its rapid economic growth, the chance of a debt crisis in China is slim. But the high local debt tally suggests that fiscal resources are more constrained than the government has previously admitted.
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