S.Li,S.Lin/TheSocialScienceJournal48(2011)527–542
531
30Explicit Domestic DebtForeign DebtTotal DebtGrowth Rate of Per Capita GDP25Percentage (%)20151050 1985 1987 1989 1991 1993 1995
1997
1999
2001
2003
200520072009
Fig.1.China’sdebtoutstandingtoGDPratioandgrowthrateofpercapitaGDP(1985–2009).
Source:Domesticdebtoutstandingdatafor1981–1999fromJiaandZhao(2001);for2000–2004fromThePeople’sBankofChina,TheBalanceofT-Bond;for2005–2006datafromChinaNationalBureauofStatistics(2007,p.283);2007–2009datafromChinaNationalBureauofStatistics(2009/2010).ForeignDebtOutstandinginthetermsofChineseyuanisobtainedbyusingtheaverageexchangerateofyuanagainstUSdollarsineachyearfrom1981to2008andforeigndebtoutstandingintermsofUSdollars,botharefromChinaNationalBureauofStatistics(1987–2009).GrowthrateofpercapitaGDPdataisfromChinaNationalBureauofStatistics(2010).
Increaseingovernmentdebtcausedanincreaseintheinterestpayment.Table3showsthepaymentforprincipalandinterestfrom1950to2005.8Thepaymentfortheprin-cipleandinterestofdomesticdebtswasverysmallbefore1990.In1990,thepaymentfortheprincipleandinterestofdomesticdebtswas11.34billionyuan,increasedto224.6billionyuanin1998,andreachedto387.9billionyuanin2005.Thehighestyearlyinterestrateis7.2%andthelow-estis1.44%,withtheweightedaverageyearlyinterestrate3.7%.9Recallthatexplicitdomesticgovernmentdebtout-standingwas5,974billionyuanin2009andifweuse3.7%interestrateforcalculation,theinterestpaymentwouldreach221billionyuanin2009.Chinesegovernmentissueddomesticdebtof1,620.90billionyuanandpaidtheprinci-pleof927.14billionyuanin2009.10Thus,thetotalpaymentfortheprincipleandinterestofdomesticdebtsin2009wouldbe1,148billionyuanin2009(interestpayment,221billionyuan,plusprincipalpayment,927billionyuan),whichmeans70%ofthenewdebtwillhavetobeusedforpaymentoftheolddebtandinterest.
2.2.Foreigndebt
Foreigndebtcanbeclassi?edasgovernmentloans(borrowedbygovernment),governmentguaranteedloans(borrowedbyprivateagentsbutguaranteedbygovern-ChinaMinistryofFinance(2009).Since2006,theChinesegovernmenthasexecutedoutstandingdebtbalancemanagementandtheprincipalandinterestpaymentofdebtisnotreportedinthegovernmentbudgetand?nalaccounts.Thus,thedataafter2005arenotavailable.9
WindDatabase:http://www.wind.com.cn.10
ChinaMinistryofFinancewebsite,thebalanceofcentralgov-ernmentdebtin2010,http://yss.mof.gov.cn/2010zhongyangyusuan/201003/t20100325280095.html.
8
menttoberepaid),andprivatenonguaranteedloans(loansfromcommercialbankswithoutgovernmentguarantee).11
Chinaadoptedanonforeigndebtpolicybeforetheeco-nomicreformsin1978anditstartedtoborrowfromtheforeigncountriesinthemiddleofthe1980s.Table2presentsChinaforeigndebtoutstandingfrom1985to2009.Foreigndebtwas46.48billionyuanin1985(accountingfor5.16%ofGDP)andincreasedto799.87billionyuanin1994(accountfor16.6%ofGDP,thehighestever).Afterwards,thegrowthofforeigndebtsloweddown.Itwas890.13bil-lionyuanin1995,accountingfor14.64%ofGDP;1,206.41billionyuanin2000,accountingfor12.16%ofGDP;and2,928.11billionyuanin2009,accountingforonly8.73%ofGDP.Fig.1alsoshowstheratioofforeigndebttoGDP.Itcanbeseethatinthe1980sandthe1990s,foreigndebtishigherthanexplicitdomesticgovernmentdebt.Since2000,foreigndebthasbeensmallerthanexplicitdomesticgovernmentdebt.
Fig.2showstheshareofdomesticandtheshareofforeignborrowingintotalgovernmentborrowing.Itcanbeseenthattheshareofdomesticborrowinghasbeenincreasingwhiletheshareofforeignborrowinghasbeendecreasing.Thewatershedwasin1994,whendomesticborrowingdominatedinthetotalgovernmentborrowing.Especially,afterthe1997AsianFinancialCrisis,Chinabecameverycautiousaboutforeignborrowing.Theratioofforeignborrowingtototalgovernmentborrowingisless5%.
ThedegreeofriskexposuresofChina’sforeigndebthasbeenlow.Table4showsriskmeasuresofforeigndebtinChina.China’sforeigndebt–GDPratiohaddeclinedfrom17.1%in1994to8.7%in2009.China’sratioofforeigndebt
11
Lin(2003).
532S.Li,S.Lin/TheSocialScienceJournal48(2011)527–542
Table3
Governmentpaymentsfortheprincipleandinterestofdebts(billionyuan).
Year
Total
Paymentfortheprincipleandinterestofdomesticdebts
Paymentfortheprincipleandinterestofforeigndebts
Paymentoftheinterestofloansfromthepeople’sbank
Sinkingfundfromtheexcessivepartofthe
revenuefromborrowingsminustheexpenditurefordebts
19501951195219531954195519601961196219631964196519661967196819721973197419801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005
0.0030.0420.3920.0910.2210.6651.0461.0931.0370.7580.5230.6360.3910.2010.20.050.050.052.8586.2895.5524.2472.893.9565.0177.9837.6767.23719.00724.6843.85733.62249.93688.296135.503191.837235.292191.053157.982200.773258.1295.224367.159392.337
0.0030.040.0580.0650.0890.1580.3730.4350.3950.4720.4270.5660.3910.2010.20.050.050.05000000
0.7982.3182.8441.9311.34215.66934.24222.4336.49678.406126.629182.04224.579179.233155.221192.342246.771287.658354.242387.851
0
0.0010.0230.0260.1320.4980.6730.6580.6420.2860.0960.070000002.445.7894.9623.6562.2733.2593.455.1964.2594.5846.8218.0228.0268.92210.7177.1696.0767.0767.669.0992.7618.4319.5427.56612.9174.486
0
0.0010.311000000000000000
0.4180.50.590.5910.6170.6970.7690.4690.5730.7230.8440.9891.5892.272.7232.7212.7982.7213.0532.721000000
00000000000000000000000000000000000001.290.340.71.90.360.80
Source:ChinaMinistryofFinance(2001,2009).
Notes.1.Startingfrom2000,thedataarepaymentsforprincipalofdebtsonly.
2.Since2006,theChinesegovernmenthasexecutedoutstandingdebtbalancemanagementandtheprincipalandinterestpaymentofdebtisnotreportedinthegovernmentbudgetand?nalaccounts.Thus,wedidnotgetthedataafter2005.
toforeignexchangereserveshaddeclinedfrom1186%in1988to18%in2009.
MostofChina’sforeigndebtispublicorpublicguar-anteed.Before1992,allthedebtwaspubliclyguaranteed.Publicorpublicguaranteedlong-termdebtwasabout98.9%oftotallong-termdebtin1995.12Theratioofpub-licorpublicguaranteedlong-termdebttototallong-termdebthasbeendecreasingsince2000.Itwas78.9%in2000,
62.3%in2005,and51.6%in2007.13Theremainingdebtisprivatenonguaranteed.Thegovernmentisresponsibleforallthepubliclyguaranteedforeigndebt.Thus,whencalculatinggovernmentliabilitiesonlytheguaranteedfor-eigndebtshouldbeincluded.Theratioofpublicorpubliclyguaranteedshort-termdebttototalshort-termdebtisnotavailable.Weassumethattheratioofpublicorpublicly
12
WorldBank(2002).
13
ChinaNationalBureauofStatistics(2002,2007,2010).
S.Li,S.Lin/TheSocialScienceJournal48(2011)527–542
533
1009080
Domestic BorrowingForeign BorrowingPercentage (%)7060504030201001981 1983 1985 1987 1989 19911993199519971999200120032005Fig.2.Shareofdomesticandshareofforeignborrowingintotalgovernmentborrowing(1981–2005).
Source:ChinaMinistryofFinance(2009).Since2006,governmentdebtissuancehasnotbeenreportedinthegovernmentbudgetand?nalaccounts,sowedonotgetdataafter2005.
Table4
RiskmeasuresofforeigndebtinChina.
3.Governmentcontingentliabilities
Year1985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009
EDT/XGS0.5600.7210.7710.8710.8640.9160.9190.8790.9650.7800.7240.6770.6320.7040.6950.5210.5680.4610.3990.3780.3360.3040.2780.2370.322
EDT/GNP0.0520.0730.0940.1000.0920.1350.1490.1440.1390.1710.1520.1420.1450.1520.1530.1350.1470.1360.1370.1390.1260.1230.1150.0870.087
TDS/XGS0.0270.1540.0900.0650.0830.0870.0850.0710.1020.0910.0760.0600.0730.1090.1130.0920.0750.0790.0690.0320.0310.0210.0200.0180.029
EDT/FER5.9910.3710.3311.867.444.742.793.573.941.801.451.110.941.010.980.880.800.600.480.370.340.300.240.190.18
Inadditiontodirectexplicitgovernmentdebt,Chinahaslargegovernmentcontingentliabilities,likelocalgov-ernmentdebt,universitydebt,andstatebanks’badloan.Thispartwilldiscussesthesethreetypesofgovernmentcontingentliabilities.
3.1.Localgovernmentdebt
Source:ChinaNationalBureauofStatistics(2001,2002,2009).2009datafromChinaNationalBureauofStatistics(2010,p.90).
Notes.EDT,totaldebtstock,XGS,exportsofgoodsandservice;GNP,grossnationalproduct;TDS,totaldebtservice(interestpaymentsplusprincipalrepayments);FER,Foreignexchangereserves.Anewstandardwasusedformeasuringforeigndebtsin2001thatincludestheinternationaltradeloanswithin3months.Thus,thequantityofforeigndebtin2001isnotcomparablewiththequantitiesinthepreviousyears.Bytheoldmeasures,totalforeigndebtwouldbesmaller.
3.1.1.Thesizeoflocalgovernmentdebt
InChina,localgovernmentsincludeprovincialgovern-ments,prefecturalgovernments,countygovernmentsandtownshipgovernments.Thesizeoflocalgovernmentdebthasnotgainedmuchattentionuntilrecently.Lin(2003)showsthattheunreportedtownship-levelgovernmentdebtwasaround200billionyuanoronly2.3%ofGDPin2001.Localgovernmentdebthasincreaseddrasticallyinrecentyears.AsurveydatafromChinaBankingRegula-toryCommission(CBRC)showsthatlocalgovernmentsofalllevelshavesetup8221?nancingvehiclesnationwide,with4,907?nancingvehiclesfromcountygovernments,andborrowedheavilythroughthembytheendofJune2009.Theaverageratioof?nancingvehicleloanstolocalgovernmentrevenuewas97.8%andinsomecitiesthisratioexceeded200%.14In2009,around34.5%,orRMB3.05tril-lion,ofthenewloansdoledoutbybankswenttolocalgovernment?nancingvehicles(LGFVs).15
AresearchreportbyChinaInternationalCapitalCorpo-rationLimitedshowsthatthenewloansin2009were3trillionandthefollow-upnewloansin2010and2011willbearound2–3trillion,whichwillmakethetotallocalgov-ernmentdebtreach10trillionbytheendof2011.Localgovernmentdebtwillbefarexceedslocalgovernmentrevenue.16
guaranteedshort-termdebttototalshort-termdebtisthesameastheratioofpublicorpubliclyguaranteedlong-termdebttototallong-termdebt.Basedonthisassumption,wecalculatethattheamountofpublicorpubliclyguaranteedforeigndebtisabout5.7%ofGDPin2007.
141516
“Localgovernmentdebtcrisis”,ChinaBusinessTimes,June3,2010.Seefootnote3.Seefootnote14.
534S.Li,S.Lin/TheSocialScienceJournal48(2011)527–542
AccordingtoastudyconductedbyChineseAcademyofSocialSciences,localgovernmentdebtwillreach9–10trillionyuanbytheendof2010andwillkeeprisingto11trillionin2011.Thecalculationwasbasedonthefollowingconsideration:outofthe3.05trillionyuannewloanstolocalgovernmentvehiclesin2009,1.56trillionyuanwenttothenewprojects.Thesenewprojectsusuallylastabout3–5years,inordertokeepthenormaloperationofthesenewprojects,atleast1.17trillionyuannewloanisneededeveryyear.17
Inthemeanwhile,ZhejiangProvince?rstdiscloseditslocalgovernmentdebt.Zhejianggovernmentdebtamountedto457.9billionyuanattheendof2009,178.7billionyuanhigherthan2008.Theratiooflocalgovern-mentdebttolocalGDPwas20.15%,10.15%higherthantheredlinesetbyZhejiangProvinceitself.18Zhejianggovern-mentrevenuewasonly214billionyuan,accountingfor9.3%ofregionalGDPin2009.19Clearly,Zhejianggovern-mentdebtexceededitsgovernmentrevenue.IfweassumetheratiooflocalgovernmentdebttolocalGDPintheotherprovincesisthesameasinZhejiangProvince,wecanesti-matelocalgovernmentdebtinChina.SincethesumofregionalGDPin2009was36.53trillionyuan,thesumoflocalgovernmentdebtwouldbe7.36trillion,similartotheestimationoftheCBRC.20
Thelatestof?cialestimationisfromtheThirdConfer-enceofEconomicandFinancialSituationheldbytheCBRConJuly20,2010.TheLGFVs’loansinChinastoodat7.66tril-lionyuan($1.14trillion)attheendofJune2010.Ofthese7.66trillionyuanLGFVs’loans,27%werefoundtohavefundedprojectswithsuf?cientcash?owtorepaytheloans.Fiftypercentmustrelyon“alternativesources”forloanrepayment,eitherseizingcollateralorinvokingthepublicguarantee.Twenty-threepercentarecategorizedas“fac-inghighcreditrisks”,i.e.,invalidquali?cationofborrowers,invalidguaranteebylocalgovernments,orloansmisappro-priated,whichmeansasmuchas23%ofthoseloanscouldgobad.21Inthemeantime,totalamountofurbaninvest-mentbond,includingmedium-termbondsandshort-term?nancingbonds,amountedto488billionyuanandtheamountofbondissuedbytheMinistryofFinanceonbehalfoflocalgovernmentsis267billionyuan.Together,totallocalgovernmentdebtexceeded8.42trillionyuanbytheendofJune2010,accountingfor24.7%ofGDP.22AfterJune2010,theMinistryofFinanceissued133billionyuanbond
17
“Localgovernmentdebtmayreachninetotentrillionyuan”,CaiJing,November1,2010.18
“Zhejiangdiscloseditsgovernmentdebt”,ChinaDaily,September29,2010.19
ZhengjiangProvincialDepartmentofFinancewebsite,ReportontheImplementationofZhejiangProvinceBudgetsfor2009andontheDraftofZhejiangProvinceBudgetsfor2010.http://www.zjczt.gov.cn/zwgk/czzl/czysbg/8398.htm.20
ThesumofregionalGDPiscalculatedbasedonthedatafromChinaNationalBureauofStatistics(2010).21
Chovanec(2010).22
Ba(2010).Urbaninvestmentbondisaspecialkindofenterprisebondbackedbylocalgovernments.Itsmainissuersarelocalgovernment?nancingvehiclesandthefundsraisedaremainlyusedforinfrastructureconstruction.InNovember2010,urbaninvestmentbondwasrenamedasMunicipalProjectConstructionBond.
onbehalfofthelocalgovernments.23Thus,thetotallocalgovernmentdebthasexceeded8.55trillion,accountingfor25.11%ofGDP.
3.1.2.Reasonsfortheincreaseinlocalgovernmentdebt
From2.3%to25.1%ofGDP,localgovernmentdebtincreasedenormouslyinthepastdecade.Wenowdiscussthereasonsfortheincreaseinlocalgovernmentdebt.Thekeyreasonforincreaseinlocalgovernmentdebtisthatgovernmentswanttoundertakesomeprojectsinitiatedbythemselves.
First,shortageoflocalgovernmentfundsandtheexpan-sionoflocalgovernment?scalresponsibility.Lin(2003)showedthatunreportedlocalgovernmentdebt,mainlyatthetownshiplevel,wascausedbythe1994taxreformandpredictedthatitmightgetworseifthecurrenttaxsystemremainedunchanged.Localgovernments’revenuesdonotmatchtheirexpenditures.In2009,localgovernmentshad47.6%ofnationalrevenuebutundertake79.9%ofnationalexpenditure.24AsshowninTable1,localgovernmentshadbudgetsurplusesmostoftheyearsbefore1994taxreform.Forexample,theirsurpluseswere36.65billionyuanin1978,and2.62billionyuanin1985.Since1994taxreform,localgovernments’de?citshavebeenincreasing,with173billionyuanin1994,2,060billionyuanin2008,and2,801billionyuanin2009.
Amongallthelocalgovernments,thecounty-levelgov-ernments’?scalsituationhasbeentheworst.Table5showsthatbudgetaryrevenue,expenditure,andde?citofcounty-levelgovernments.Thede?cithasbeenincreasingrapidly,from135billionyuanin2000to1,113billionyuanin2008.County-levelgovernmentbudgetde?citsaccountedfor28%oflocalgovernmentbudgetde?citsin2000,41%in2003,and54%in2008.
Localgovernmentsrelyonthetransfersfromthecentralgovernmenttobalanceitsbudget.Table6showsthecen-tralgovernment’stotalrevenue,expenditure,andtransferstolocalgovernments.Thenettransferfromcentralgovern-menttolocalgovernmenthasbeenincreasingsince1994.Thenettransferwas10.3billionyuanin1990,increasedto181.9billionyuanin1994,roseupto2,204.4billionyuanin2008,andreached2,862.1billionyuanin2009.Theratioofnettransfertonationalconsolidatedbudgetrevenuewas3.5%in1990,increasedto34.9%in1994,stayedaround30ˉterwards,andreached41.8%in2009.Therearefourlevelsoflocalgovernments,provincial,prefectural,county,andtownshiplevel.Thelowerthelevelofgovernments,thelessthemoneyisavailablefortransfer.Thus,lowerlevelgovernmentsareinaverydif?cult?scalposition.
Second,transfersareintheformoftaxrebates,gen-eraltransfers,?xedsubsidiesorsubmissionundertheoldsystem,budgetarysubsidies,andappropriationsforspe-cialprojects(matchinggrants).Alargeproportionofthetransfersarematchinggrants,whichthelocalgovernmentshavetoprovidematchingfundsinordertoobtainthisfund.In2008,centralgovernmenttotaltransfertolocalgovern-mentwas2,200billionyuan,with334billionyuanbeing
23Seefootnote9.
24
CalculatedbasedonthedatafromTable1.
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