Koh Gui Qing of Reuters writes of the “nightmare scenario” unfolding in provinces such as Jiangsu, home to China’s most indebted local government:
Little public information is available on the total debt of Chinese local governments. Indeed, earlier this month China’s Vice Finance Minister Zhu Guangyao said Beijing did not know the precise level of their debts either.
But from what ratings agencies and think-tanks can piece together, Jiangsu may be the standout debt risk among China’s 31 provinces.
Looking at bank loan books, they can see that China’s eastern provinces including Jiangsu have the highest concentration of government debt. Jiangsu then looms large because of its reliance on costlier and alternative forms of financing, which they said suggested that cheaper bank loans and land sales are not giving the authorities the funding they need.
The risk that Jiangsu might pose to the Chinese economy in a crisis is clear. On its own, the province would be a top 20 global economy with GDP greater than G20 member Turkey. Its 79 million population tops that of most European countries. [Source]
Last month, credit rating agency Moody’s warned that local government debt “poses a key risk” for Chinese banks, as shrinking local revenues impact the ability of officials to manage bloated balance sheets. And the 21st Century Business Herald reported last week that the best hope for some local governments may be relief from Beijing.