Local Debt Audit Reveals Bankruptcy of China’s Many Cities
On July 28, the Chinese Communist Party (CCP)’s
National Auditing Office (NAO) announced that:
“Recently, following the State Council’s requirements,
NAO will organize national audit institutions to
audit government debts."
Cao Siyuan, who presided over drafting the CCP’s first
Enterprise Bankruptcy Law, told our reporters that
this audit on local debts could be an assessment of
local governments who are in a serious debt situation.
However, experts say that since most local officials are
involved in corruption, real exposure of local government debt
will encounter a lot of resistance.
According to China’s official media reports,
on July 26, the State Council issued an urgent message
requesting an audit of government debts across the country.
The national audit work will start full-scale on August 1.
This audit will hold a thorough diagnostic evaluation over
the debts of the five levels of government:
central, provincial, city, county and township.
Detroit, the fourth biggest city in the U.S.,
has recently filed for bankruptcy.
Cao Siyuan, president of the Siyuan Merger and Bankruptcy
Consulting Firm, once worked in the General Office
of the State Council and the CCP’s State Council General.
Cao told NTD that, the communist regime thinks as a
socialism country, it wouldn’t have bankruptcy issue,
thus the bankruptcy law in China was abolished previously.
Cao Siyuan: “In 1980, I was the first one who published
an article raising the need to re-enact China’s bankruptcy law.
I continued this effort while I worked at the State Council.
Eventually I worked on drafting it.
The Enterprise Bankruptcy Law came into effect on
November 1, 1988."
So far, the concept of bankruptcy is limited to business.
Government has long been considered impossible go to bankrupt.
Cao Siyuan said the bankruptcy of Detroit woke people up.
As long as a debtor can’t pay off maturing debt,
they may fall into bankruptcy.
So people are paying attention to local government bankruptcy.
To prevent this from happening suddenly, the audit department
decided to carry out government debt audits across the nation.
Cao Siyuan: “For a long time, local governments
haven’t had the concept of bankruptcy.
When incurring debts, there was no thinking over thoroughly
questions such as whether and how to pay it back.
They didn’t think about such issues.
They just borrow and get insurance as they wish.
Thus the debt level of local governments is very high."
China has 12 so-called ‘ghost cities,’
large areas of uninhabited real estate development,
including Erdos Kamba of Inner Mongolia,
Zhengdong New District of Zhengzhou and
Hebi city of Henan Province,
Yingkou city of Liaoning Province and
Changzhou City of Jiangsu Province.
Cao Siyuan says without income from the real estate investments,
these 12 cities will face bankruptcy and debt repayment problems.
Auditing local government debt will likely expose corruption,
and declaring bankruptcy will cause local officials
to lose their positions.
There are layers of obstacles,
from central to local governments,
blocking exposure of the true debt situation
and recognition of local government bankruptcy.
Cao Siyuan: “Cover-up debt makes it increasingly confusing.
It’s like if someone planted a landmine: a good way
to deal with it is to remove it or avoid stepping it.
But if it’s just covered up with lawns and flowers,
whoever steps on it will cause an explosion."
China’s many local governments’ fiscal expenditures
far exceeds their budgets.
Duan Shaoyi, assistant director at Beijing
Tianze Institute of Economics, says
local governments build luxury government buildings
to brush up their image,
resulting in the huge debts of many local governments.
Deficiency of the CCP system is also a reason for soaring debt.
Duan Shaoyi says the performance index for CCP officials
only looks at GDP and image projects, not the debt level.
Duan Shaoyi: “Bo Xilai launched many image projects
when he was in Chongqing,
such as holding the competition involving 10 thousand
people singing CCP songs, for example.
The government didn’t consider
how much time and money he spent.
There are also more trees on Chongqing streets.
But Bo Xilai incurred several billion dollars in debt.
Many people knew nothing of it."
During the CCP’s Two Sessions this year, Dong Dasheng,
Deputy Auditor General of the CCP Audit Commission said that
as of the end of 2010, CCP Central debt is over 7.7 trillion yuan
($1.3 trillion), and local debt is 10.7 trillion yuan ($1.7 trillion).
The International Monetary Fund said earlier this month,
that China’s central and local government debts are estimated
to account for 45% of China’s GDP.