Regional Chinese Debt Issued to Fund Social Welfare Projects Climbs by 84%

Here are some simply stunning numbers out of China.

Moody's is out with a new report which reveals a dramatic explosion in debt in China at the regional and local levels.

According to Moody's, China’s National People’s Congress released the State Council’s update of debt statistics for regional and local governments. The update shows that RLG debt at the end of 2014
rose by more than one third to RMB24 trillion ($3.7 trillion), the equivalent of 38% of China’s 2014 GDP, from RMB17.9 trillion as of June 2013. The credit-negative rise in debt leaves RLGs more exposed to the effects of China’s slowing economy and the related weakening in revenues, against the backdrop of falling land sales.

Higher levels of both direct and indirect debt suggest that RLG indebtedness has increased on account of new borrowing since June 2013. Direct RLG debt obligations rose 41%, while indirect and contingent liabilities rose 23%. Debt issued for infrastructure purposes – the largest segment of direct debt – rose 24%,and debt issued to fund social welfare projects rose 84%.

Higher RLG debt, notes Moody's, leads to worsening credit metrics such as debt/GDP and debt/revenue. Between January, and July 2015, China’s slower GDP growth rates lowered the RLGs’ budget revenue growth to 9% from 11%a year earlier. Seven provinces reported falling revenues, while 18 reported single-digit revenue growth and only six achieved double-digit revenue growth. Meanwhile, land sales fell 38%, versus growth of 3% in 2014 and 45% in 2013.

China is in the early stages of a major economic collapse, the result of mad central bank money printing and out of control government financial operations such as that detailed above.

-RW