Governor of China’s Shandong Says May Sell Assets to Pay Debt

Some cities and counties in China’s Shandong may need to sell assets to repay borrowings as the eastern Chinese province seeks to pare debts accumulated by local authorities, Governor Guo Shuqing said.

The province will pay back all of its local debt, which should be less than 1.2 trillion yuan ($192 billion), Guo said during a meeting of Shandong delegates to the National People’s Congress in Beijing today.

“Overall risks are under control,” Guo said. “Some counties and cities with heavy debt will need to raise funds through restructuring and selling assets to pay off debt.”

China has ordered local governments to rein in their borrowings to reduce risks that their indebtedness could destabilize the world’s second biggest economy. Regional debts may have already reached 25 trillion yuan, bigger than the size of the German economy, according to Mizuho Securities Asia Ltd.

China announced plans in October to cap the amount of debt local governments can take on, and said all borrowings by provinces and cities will need to be within a certain quota set by the State Council and approved by the National People’s Congress. Last month, the nation’s finance ministry asked local governments to re-examine the amount of debt they reported to central authorities as some had inflated numbers, two people familiar with the matter said.

Shandong hasn’t completed its accounting of local government borrowings, said Guo, who led China’s securities regulator before becoming governor in 2012. Guo didn’t name the locations in Shandong with high-levels of debt.

Local government financing vehicles, or LGFVs, were set up by the thousands in China after a 1994 budget law barred regional authorities from directly issuing notes or borrowing from banks. Local government debt swelled to 17.9 trillion yuan as of June 2013, compared with 10.7 trillion yuan at the end of 2010, according to the National Audit Office.