China targets local governments, banks for hidden debt violations by naming and shaming them
China economy
Beijing has intensified efforts to curb the unchecked growth of informal backchannel borrowing, known as hidden debt, which poses a risk to China's financial stability. However, despite these efforts, Ministry of Finance audits reveal that such hidden debt has continued to rise.
Hidden debt in China, off-the-books borrowing by local governments and state-owned enterprises, remains a major problem.
Naming and shaming misconduct
In a recent move, the Ministry of Finance has singled out local authorities and state banks across seven provinces and flagged eight cases of misconduct related to hidden debt, reported the South China Morning Post.
One case in Hubei province saw local authorities borrowing money from provincial-owned companies to fund construction projects, which contravenes national regulations.
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This contributed to a hidden debt of 21.48 billion yuan(US$2.95 billion) from August 2018 to June 2021. In another case, the Shaanxi branch of the Agricultural Development Bank of China offered loans and related services to local governments in violation of rules and regulations, resulting in a hidden debt of 1.276 billion yuan (US$17.5 million)as of June 2021.
In response to the violations, the ministry fined the bank branch 500,000 yuan (US$69K) and reprimanded relevant employees. Finance authorities said that these eight cases reveal deviations in the performance of officials and units, citing weak discipline as a hindrance to debt-reduction efforts.
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To address the growing debt pressure facing local governments, the central government made significant changes to the national budget. China also plans to accelerate the issuance and use of government bonds to support the economy.
China aims to establish a long-term mechanism for managing local debt risks, optimising both central and local government debt structures. The Ministry of Finance remains committed to implementing a proactive fiscal policy, improving efficiency, and supporting local governments facing financial burdensdue to natural disasters.
(With inputs from agencies)