Audit targets local government debt

Move 'aims to reveal mounting risks and pave way for reform of finance system'

The National Audit Office declared on Sunday that it will start a nationwide assessment of local government liabilities, which will address concerns about rising debt from overambitious development projects.

The announcement was made following Chinese media reports that the State Council has made the audit campaign one of its "urgent" tasks, and that all government auditors are being given crash training so they can start the audit as early as next week.

Their work is expected to update China's local government debt figures, which stood at 10.7 trillion yuan ($1.75 trillion) by the end of 2010.

By comparison, China's GDP was close to 52 trillion yuan in 2012.

But an estimate by the International Monetary Fund last month put China's total government liability, including government-led infrastructure development projects, in excess of 45 percent of the country's GDP.

Experts said the new audit aims to reveal mounting risks from rising local government debt, which has sparked fears of a hard landing for the economy amid a continuous slowdown.

In the meantime, the effort will pave the way for a possible overhaul of the public finance system to build a healthier and more responsible financial administration, they said.

In the short term, the move will provide decision-makers with clear options, said Zhao Quanhou, head of financial research at the Fiscal Science Research Center affiliated with the Ministry of Finance.

If the results turn out to be good, he said, new policies could loosen local government financing, as the economy still yearns for capital to restore growth.

"But given local government debt conditions in recent years, the results are unlikely to be promising," he said.

In a June report, a survey of 36 provinces and cities showed debt levels expanded 13 percent over the past two years.

Du Xiangqian, a government auditing researcher, said the 2011 audit work was completed and made public within five months, and this year's project may require about the same time.

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