UN experts: China has no systematic debt risk

17:21, March 16, 2011      

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China's debt level is not high enough to pose any systematic risk, said Hong Pingfan, director of the Global Economic Monitoring Center under the U.N. Department of Economic and Social Affairs, in an interview with Xinhua in New York on March 14.

However, he also suggested that China's central government strengthen the regulation on financing platforms of local governments. China's official data shows that the debt of the Chinese central government stood at more than 1 trillion U.S. dollars by the end of 2010, accounting for 17 percent of China’s GDP. This is manageable, he said.

Hong said there are two concepts regarding a country's debt, namely gross debt and net debt, which is debt minus assets. It is more accurate to use the net debt when measuring a country's debt risk. The size of China’s net debt is relatively small.

Hong said that when it comes to the debt issue, we should distinguish domestic debt from foreign debt. An important factor in why Japan's debt risk is not very high lies in the fact that 90 percent of the debt is owned by Japanese citizens and institutions. In contrast, 70 percent of European countries' debts are held by foreign individuals, banks and institutions, so their debt risk is much higher than that of Japan.

The Chinese government's debt is also mainly held by domestic Chinese citizens and institutions.

Hong said that China's saving ratio is as high as almost 50 percent and is the highest around the world, which is crucial to the sustainability of China's government debt. Furthermore, China's one-year government bond yield is less than 3 percent, meaning a very low level of cost for the government debt.

China has maintained an average annual growth rate of 10 percent over the past 30 years, which ensures that the government has sufficient income to lift its debt repayment capabilities. Therefore, China faces no systematic risks of a sovereign debt crisis.

In China's efforts to stimulate its economy to fight against the impact of the global financial crisis, local governments rushed to borrow money from financial institutions for their big investment projects.

According to a report by the National Audit Office in 2010, the public debts by local governments reached a staggering amount of 2.8 trillion yuan by the end of 2009. In the most extreme cases, the ratio of the debts is more than three times that of the fiscal revenue in some places, according to the report.

Xie Xuren, China's Finance Minister, has recently vowed to step up the supervision over the public debts and the budget information transparency at the local level.

By Li Jia, People’s Daily Online

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