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| Victor Shih |
Here is how we arrive at these numbers. First of all, we have to understand that the National Audit Office is like the Congressional Budget Office and only cares about debt directly owed by local government organs or debt directly guaranteed by local government organs.More analysis from Victor Shih in the Financial Times
It does NOT care about liabilities of central and local governmental entities, which were not guaranteed by the government. Chart 3 of the report states that the audit uncovered Rmb4,970bn in local government financing vehicle (LGFV) debt as of the end of 2010, and another Rmb5,700bn or so owed by local government organs and “business units subsidised by the budget.”
However, based on the figures previously released by the CBRC and the PBOC, we know that the Rmb4,970bn LGFV debt figure is way too low. The discrepancy between the CBRC and PBOC estimates and the NAO number arises from the fact that the NAO was only looking for LGFV debt in which the local government has issued decrees or guarantees to underwrite. Thus, LGFV debt which is guaranteed by another company or is collateralised by land was not part of the NAO audit.
Victor Shih is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.
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