When dealing in debt, normal rules don't apply

Years after college, I still remember a sentence that vividly captures the relentless skepticism a journalist is supposed to embrace: "If your mom says she loves you, check it."

It often pops into my head when I cover China's local government debt.

The country's regional governments reported total direct debt of 16 trillion yuan ($2.58 trillion) at the end of last year, a 47 percent surge over 18 months, while direct and indirect debt exceeded 25 trillion yuan, larger than Germany's GDP.

Four years ago when the National Audit Office conducted its first survey on debt levels, it found by the end of 2010 direct debt was 6.7 trillion yuan.

That means in those four years, debt had soared 138.8 percent, while GDP had expanded 56 percent.

As debt has kept ballooning, too many officials, and scholars with a government background, have been telling us that concerns are overblown, that the risks are manageable and the debt-to-GDP ratio remains low compared with other overseas economies.

That is not totally wrong, but at most, it is only a half truth. The other half truth is that this rising level of debt is alarming, borrowing constraints inadequate, and maturity mismatch problem serious.

The infrastructure projects that lie behind much of this local government borrowing have proved so weak in generating cash flow that the top authorities have had to step in and arrange a 1-trillion-yuan debt-refinancing program, with more restructuring expected in the pipeline.

Who said only Western countries have spin doctors?

For me, reporting the local government debt issue is a constant learning experience. I still remember the shock I felt when I first heard from an analyst who rated bonds issued by local government financing vehicles, that officials never consider the repayment when they issue them in the first place. I initially struggled to understand why it is, that when knowing the risks of these bonds, financial institutions still fought with each other to buy them.

Over time I figured out the answer: Normal rules don't apply. Each player is dabbling in the debt market with their own interests in mind. But if the financial regulators keep a blind eye to this debt binge, the game could end up with everyone losing, and ordinary Chinese paying the bill.

Sadly, too often we learn the hard way when crisis strikes. By then, in hindsight, it's easy to apportion blame. (Remember the global financial crisis seven years ago?)

Too often in the past, we heard criticism of the media, that they tend to exaggerate the risk and are not being objective. But officials should feel lucky if the "watchdog" press keep vigilant. "Over pessimistic" is better than "over optimistic".

In reporting issues such as the debt travails of local governments, reporters should strive to be more than just recorders or transcribers. Instead, they must deliver well-informed judgment based on a thorough understanding of the situation and the facts in hand. They must listen to sources who they think deserve respect, and write what they think deserves reporting.

It may be an over-reaction to check whether your mom loves you. But next time she says you're good-looking, you'd better check it with a passerby, just in case.

Contact the writer at zhengyangpeng@chinadaily.com.cn