Last week, the Chinese authorities created a stir when they announced that they are initiating an urgent review of outstanding debt for all of the various levels of the public sector in China, right down to individual villages. This raised market concerns, because one interpretation of this action is that the authorities may not have a handle on the amount of publicly-guaranteed debt in the economy, particularly in the local government sector, where the growth of debt has recently been extraordinarily rapid.
The authorities do not appear to have decided when (or whether) the results of this survey will be announced and of course there will be the usual suspicions that the eventual numbers will be massaged for public view. Until recently, it had generally been assumed by China watchers that, while the growth in private and corporate credit was running dangerously ahead of GDP growth, there was a major silver lining in the healthy financial condition of the government sector. Read more