(Bloomberg) The hidden debt held by China’s local governments stood at 53 trillion yuan or $8.2 trillion at the end of 2020, more than triple from 16 trillion yuan in 2013.
At 53 trillion yuan, the local government debt is now about 52% of the country’s gross domestic product and higher than the official outstanding debt held by the state.
Goldman now says Beijing needs to find a flexible way to tackle the rising debt amid mounting pressure from declining land sales by local governments.
China is also battling a housing market crisis, supply shortages, and power rationing, which could prompt the central bank to rethink its hawkish policy stance.
Goldman recommends that the Chinese government raised the bond quota for 2022 by at least 500 billion yuan from the 2021 level of 3.65 trillion yuan to address the funding gaps created by shrinking land sales.
China does not keep an official record of local governments’ hidden debt, while private estimates vary. Goldman’s estimation is based on at least 2,000 LGFVs’ statements on interest-bearing debt.
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