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Frank Chen

One of China’s top financial watchdogs has sounded the alarm over government debts to businesses, identifying more than 7 billion yuan (US$960 million) in unpaid bills last year alone.
The arrears were spelled out in a report submitted by National Audit Office director Hou Kai to the top legislature on Sunday.
The revelation was the result of an assessment of progress on efforts to rectify problems identified previously in the implementation of the 2023 central government budget.
The report said that 10 provinces had amassed a combined 7.63 billion yuan in arrears to businesses since March 2023.
It did not say which provinces were at fault but most of the new debt was owed to contractors, with five localities launching infrastructure projects “without budget arrangements or securing funding”, resulting in 6.95 billion yuan in unpaid bills.
In addition, 30 localities were caught forging payments to businesses.


The assessment comes as Beijing redoubles efforts to shed debt and revive business sentiment.
As part of that drive, Beijing told lower-level administrations to set up dedicated accounts to manage debt repayments.
But the report said new debts were continuing to mount, in violation of rules and regulations.
The NAO pointed the finger at slack management of local government finances but also admitted that slowing economic growth and slumping land sales were the underlying causes in many localities.
To deal with these headwinds, many administrations were using budget funds to make repayments, swapping debt for government bonds or reporting debt to a hidden debt monitoring system operated by the Ministry of Finance, the report said.
Localities were also paying back money using proceeds from the sale of government assets and land.
Tang Dajie, a senior researcher with Beijing-based China Enterprise Institute think tank, said the report’s findings were not surprising given the country’s economic challenges.
“It is a candid admission that despite Beijing’s requests, issues persist,” Tang said.
“The size of the debts and unpaid money revealed is not significant but the report, now made public, is a stern reminder to localities when it comes to managing debts and helping the private sector.”


Beijing is striving to defuse a debt crisis that has drained the finances of many regions and added to the threats to financial stability.
Putting local finances back on sustainable footing and clearing debts owed to businesses, usually private ones, are also vital to restoring confidence and resolving the perennial triangular debt issue.
In November, China’s top legislature endorsed a bill for a 6 trillion yuan debt swap as a reprieve for indebted localities.
Beijing is also offering assurances to businesses.
In October, the Communist Party’s Central Committee and the State Council issued a joint document on debt repayment.
In it, the authorities vowed to regulate government projects, with plans to set up a national platform for small and medium-sized enterprises to report complaints.
This week, a new law dedicated to promoting the private sector was submitted to the National People’s Congress’ Standing Committee for review.
The audit report also shed light on the emerging misuse of government data for profit. Without naming the culprits, it said three government departments had been told to stop using data to illegally collect fees.


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