Be careful of local government debt

The bankruptcy of Detroit is attracting global attention and local awareness, said an editorial in Southern Weekly (excerpts below).

The National Audit Office will audit China's local government debt. In 2011, it found that this debt was about 10.7 trillion yuan ($1.74 trillion).

In April, Fitch Ratings, a global rating agency, downgraded the ability to repay long-term RMB debts from AA– to A+, based on local government debts.

China's debt has already exceeded 70 percent of its GDP, while the average stable rate for emerging market economies is only 60 percent.

Actually, local governments are already trapped in a circle of raising new debt to repay old. In some sense, some local governments are already as bankrupt as Detroit.

The role of local government must be changed so that they do not participate in competitive economic activity. Local budgets must also be strongly supervised.