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Local authorities warned about rising debts
By Fu Jing (China Daily)
Updated: 2006-02-10 05:30
The World Bank has called for proper management of China's hefty local
government debt.
Experts believe the figure stands at more than 1 trillion yuan (US$125
billion), or 10 per cent of China's gross domestic product.
Since there is no law to regulate local governments' borrowing, the
organization has suggested drafting relevant regulations to tackle the problem.
"It's a sensible policy choice, as is establishing a new legal framework for
local borrowing, though this is a complex task," the World Bank said in a
quarterly report on China's economy yesterday.
Local governments are responsible for about 70 per cent of total government
expenditure, including health, education and social security.
"The debt has been formed mainly because of mismatches for years between
expenditure assignments and revenues of local governments," said Bert Hofman, a
lead economist for the World Bank.
Policy insiders said the central government has no plans to write-off the
debt, which is believed to be more than 1 trillion yuan.
"As far as I know, the Ministry of Finance has been firmly opposed to writing
off the debt but it has agreed to render more financial support to grass roots
government," said Jiang Zhongyi, a senior researcher at the Ministry of
Agriculture.
Jiang said new debt has been formed in some local governments as the central
or provincial governments did not transfer enough cash to support local social
undertakings.
He said complaints have been "mounting" in some counties, as civil servants
were being unpaid or under-paid since the government scrapped agricultural taxes
nationwide.
The World Bank said a range of reform was necessary to manage current debts
and risks, and prevent new ones forming.
A research team with the National Development and Reform Commission also
warned of the financial risks brought by heavy borrowing.
The team suggested more financial support from the central government to meet
the local governments' needs in education, medical care and social security.
(China Daily 02/10/2006 page2)
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