According to Chinese media outlet Xiwang Zhisheng, China’s Ministry of Finance announced 8 cases in which local governments used various methods to conceal hidden debts.

The appalling one was the case of Anhui Province. Anqing City directly deleted a hidden debt of over 5.5 billion dollars, and the scale of the fake debt shocked the market.

Anqing’s false debt was investigated, and the fiscal self-sufficiency rate was only 32%

According to China’s Ministry of Finance, in November 2019, relevant units in Anqing City, Anhui Province, signed a supplementary agreement with Anqing Tongqing Industrial without the consent of the lending financial institutions.

The agreement was signed based on the decision of the Anqing Municipal Government and changed the amount of the original Shantytown Renovation government purchase contract. About 5.5 billion dollars was directly deleted from the agreement and treated as debt conversion, resulting in an unreal debt conversion.

Xiwang Zhisheng reported that such a huge government funding commitment was canceled and turned into general debt without the bank’s consent.

Anqing Tongqing Industrial is a 100%-owned subsidiary of Anqing Finance Bureau, a typical urban investment platform with businesses including land preparation and municipal engineering. As a result, the fact that the government wiped out its invisible liabilities by re-signing an agreement with its own subsidiary surprised the market.

In April 2020, Tongan Holdings Limited Liability Company, a subsidiary of Anqing Municipal Government, issued medium-term notes to raise funds.

They used over 52 billion dollars to repay the interest on the previously hidden debt, agreeing that the government would bear the financing. This move resulted in new hidden obligations.

At present, more than 90% of the new debt issued by the city investment company is to repay the old debt. It means that Anqing is issuing new debt to repay the interest on the previously hidden debt.

Moreover, according to Chinese language media Xiwang Zhisheng, if the new debt is not issued, Anqing can’t even repay the interest on the hidden debt.

Aside from cases in Anqing, 16 companies, including Chongqing Energy Investment Group, applied for bankruptcy and reorganization in April 2022. This incident also attracts the attention of the market.

According to statistics from Wind, Chongqing’s fiscal self-sufficiency ratio in 2021 was around 47.3%. The debt ratio in 2020 was around 27.2%.

In addition, the debt ratio and the wide-caliber debt ratio, including urban investment bonds, are around 80.4% and 279.9%, respectively. So far, there are 123 cities. With the existing debt, there is a certain amount of debt pressure.

Hidden debt is concealed in various ways

Local governments under the communist regime usually have three account books. One is open to the public. The second book, which shows the hidden debt, has been informed to the Ministry of Finance and is shown in the Ministry’s system.

The third book has not been reported to the Ministry of Finance but has been added in recent years. The Ministry of Finance wants to eliminate this book, but it is difficult.

From the circulars of China’s Ministry of Finance over the years, we can see how hidden debts are concealed in different ways.

It is more common to issue debt with urban investment companies. However, funds do not match the commitment to issue debt.

Some of the funds are used to repay other hidden debts.

For example, authorities in Ningxiang City, Hunan Province, used two urban investment platforms to issue bonds and loans of 62 million dollars to repay the hidden debts due.

Moreover, there are excessive budget loans.

The Third People’s Hospital of Xinyang City, Henan Province, borrowed 37.4 million dollars from the bank to pay for the new hospital project construction funds arranged by the financial budget. It resulted in new hidden debts.

In addition, the hospital also used 25.4 million dollars of funds raised from corporate bonds for unemployment insurance expenses, which also resulted in new hidden debts.

Yuxi Kaitou Company and Yuxi Homeland Company in Yuxi City, Yunnan province, are also at risk of having hidden debts.

In February 2020, the companies loaned 82.4 million dollars to CDB Yunnan Branch. However, they lent the funds to Yuxi City-related units.

Similar practices have also been identified in Yuxi City.

In 2019, a state-owned company applied to the Stock Exchange for a non-public issuance of private placement bonds and used the “borrowing new to repay the old” method of 74.5 million dollars of bonds issued in 2016.

However, the government debt was not actually resolved.

Yuxi City also delayed the payment of 4 million dollars for the project because the final accounts were not completed and could not be paid in advance. It means the city is within the scope of hidden financial liabilities.

Xiwang Zhisheng reported that the scale of debt issuance for urban investment was declining. It would be difficult to cover the debt hole.

Moreover, the media outlet said that China’s hidden debt had become an explicit problem. As long as the corrupt Chinese government’s system is still in place, this is a dead-end.

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