China's Debt_ Chinese Official Downplays Debt Risk as Haikou Pleads for Relief

Bloomberg News

Chinese Official Downplays Debt Risk as Haikou Pleads for Relief

By Bloomberg News
5:35 PM AEDT March 27, 2015

(Bloomberg) -- The governor of China’s tropical Hainan Island downplayed the risk of financial trouble after the province’s capital city said it might not be able to pay its debt and made a plea for help.

“I am confident in debt repayment at all government levels in Hainan,” Hainan Deputy Governor Mao Chaofeng said on the sidelines of the Bo’ao Forum on the island Friday. “I don’t think there will be a risk.”

Mao’s reassurances contrasted with a Feb. 4 letter from the political advisers of Haikou and posted on government website that said the city’s debt had “already exceeded the alarming line.” It said revenue would be flat and asked that the regional government allocate a third of its bond issuance quota to the city.

“It’s basically impossible for us to pay government debts with our own financial resources,” the advisers wrote in the letter.

The letter shone a spotlight on how local governments are grappling with $4 trillion debt pile accumulated over decades of explosive growth in China. Finance Minister Lou Jiwei is looking to tighten control of lending as economic growth slows.

Hainan is striving to become a Hawaii-style international tourism destination. Newly built residential property prices dropped 6.2 percent in February from a year earlier.

Haikou’s debt problem is so severe that it was included two years in a row on a finance ministry list of cities at risk because of high debt, according to the letter.

China’s local-government borrowings swelled to 17.9 trillion yuan ($2.9 trillion) as of June 2013, National Audit Office data show. The liabilities may have now reached 25 trillion yuan, bigger than the size of the German economy, according to estimates from Mizuho Securities Asia.

Asked about Haikou’s situation Friday, Mao said it’s “inaccurate” to say the debt has reached a danger zone.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net Nicholas Wadhams

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