QWhen Xi Jinping inspects a province – a Chinese leader does not ” visit “ not, he “inspects” – its motto is always the same: to accelerate modernization. Two provinces have just been called to order: Hebei, the region surrounding Beijing, and Shaanxi, which the Chinese number one inspected in mid-May. If they want a chance for promotion, regional leaders have no choice but to comply. In fact, the result is obvious: in just over a decade, the country has acquired impressive infrastructures. China is the paradise of the successors of Gustave Eiffel.
But all of this comes at a cost. If, in the United States, it is the amount of the federal debt which worries, in China, it is the local debts which pose problem. Three communities have just sounded the alarm. On Friday, May 26, the city of Wuhan published in the local daily a list of 259 companies, public or private, which owe it money and are having their ears pulled to repay their debt. In total, the slate amounts to 300 million yuan (about 40 million euros). “Fulfill your repayment obligations immediately”, encloses the notice. Already, in February, the Wuhan authorities, no doubt to save money, had sought to reduce medical reimbursements paid to the elderly, which had provoked two demonstrations, an extremely rare phenomenon in China.
A few days earlier, it was Kunming, the capital of Yunnan, which worried investors because it was unable to meet two loan maturities which, in total, amounted to 158 million euros. And in April, it was the neighboring province, Guizhou, which called on Beijing for help. This poor and mountainous region, which in recent years has offered several spectacular bridges and viaducts to try to open up, is unable to repay a debt estimated at 158 billion euros.
A hidden debt of 9.2 trillion euros
Chinese provinces face a real dilemma. Summoned to invest at all costs, they have only a limited borrowing capacity set by Beijing. To circumvent the difficulty, they have created ad hoc financing tools called local governing financial vehicle (LGFV), whose borrowings on the financial markets do not appear in the public accounts.
Appeared in the aftermath of the 2008 financial crisis, this “hidden debt” worries Beijing, which recognized the phenomenon in 2017. There are now thousands of LGFVs. The central government has not systematically identified them since 2018 – no doubt so as not to have to consolidate a debt that it does not recognize as its own – but the International Monetary Fund (IMF) estimated in 2022 the total amount of this hidden debt at 70.4 trillion yuan, or about 9.2 trillion euros. An amount which, according to the IMF, should almost double by 2027. According to the investment bank Goldman Sachs, the Chinese public debt would amount, taking into account the hidden debts, to 23,000 billion dollars (21,500 billion euros), or 126% of GDP, much more than the 77% officially announced…
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