MNI: China Audit Office Details Illegal Local Govt Borrowing

     BEIJING (MNI) - The China government announced Friday progress in its

effort to control illegal borrowing by local governments, highlighting the

central government's efforts to curb local government debt. 

     The National Audit Office (NAO) announced in its third quarter report that

five cities and counties in Jiangxi, Shaanxi, Gansu, Hunan and Hainan provinces

had illegally offered guarantee letters for CNY6.43 billion of debt issuance,

while  10 cities and counties altered their books to inflate their fiscal income

by CNY1.55 billion.

     The NAO specifically described the case in Anji, a county in Zhejiang

province, whose government raised a total of CNY800 million back by illegal

guarantees.  The Anji government paid back its loan by August and the four

people responsible have been punished by the government, the NAO report said.

     This is the first time this year that the NAO has mentioned the illegal

debt raising practices by local governments in its report, as the central

government ramps up its efforts to clamp down on illegal local government debt

issuance.  For example, regulators are also curbing the use of public-private

partnerships (PPP) by local governments to raise funding. 

     "We should not look at these things individually and we should know there

will be more events to come indicting stricter management of local government

debt, even including events addressing the radical reforms of fiscal revenue and

taxes," analysts at Shenwan Hongyuan Securities said at the weekend. "We remind

investors to pay attention to the Ministry of Finance annual meeting at year-end

setting next year's fiscal agenda, and we expect this meeting to set the tone

for local government debt and the tax coordination problems between the central

government and local governments."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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