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For local government debts, transparency seen as a necessity

By Wu Yiyao in Shanghai | China Daily | Updated: 2013-04-09 10:03

Economists encourage greater openness and market liberalization

Economists in China have called for a more liberalized market and greater transparency in soaring local government debts.

The latter must be achieved before decision makers can have a clear idea of what to do with the debts, said economists at a conference on China's financial policies in Shanghai on Monday.

Xu Xiaonian, professor of finance at the China-Europe International Business School (CEIBS), said it is unclear how much money local governments have borrowed from various parties since the central government introduced a 4-trillion-yuan ($644 billion) stimulus package to boost the economy and domestic demand in 2008.

"In localities with relatively good financial conditions such as those coastal cities in the eastern and southern parts of China, local government debts are about two times that of annual fiscal revenue ... and some overseas institutions estimate that debts at various levels of government in China may be 100 percent of China's GDP," said Xu.

Xu said to clear up non-performing debts, it is essential to have a clear picture of local government balance sheets.

Concerns over government debt in the world's second-largest economy have intensified since decision-makers tightened financing in the real estate sector. This affects local governments' land sales, a major source of their fiscal income.

The development of the local real estate industry and local governments' debts are intertwined, and if housing prices drop drastically, lenders may have to face heavy bad debts, said Xu.

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