China's debt rises to $2.58 trillion, but remains within official limit

The steady rise of the local government debt worries economists and regulators though the country's overall government debt fell last year to 36.2% of its GDP

China's spiralling debt, a major concern for the slowing down of its economy, has risen to $2.58 trillion, a media report said Sunday.

The country's top legislative body has decided that the upper limit for local government debt this year should be 21 trillion yuan.

China's local government debt balance stood at 17.66 trillion yuan ($2.58 trillion) by the end of August, but it remained within the official limit, state-run Xinhua news agency reported, quoting the Ministry of Finance as saying.

Regarded as the "hidden debt", the steady rise of the local government debt worries economists and regulators though the country's overall government debt fell last year to 36.2 per cent of its GDP, lower than the level of the most advanced economies.

The local government debt came in the form of local authorities guaranteeing, often by informal arrangements, borrowing by companies known as local government financing vehicles (LGFVs), which fund projects on behalf of the local governments, an earlier report in the Hong Kong-based South China Morning Post said.

Chinese President Xi Jinping has been pressuring local governments to cut their debt levels to reduce financial risk in the world's second-biggest economy, but for some of them the addiction to debt has proved difficult to overcome.

Concerns are raising as the world's largest economy continued to slowdown and posted a 6.9 per cent GDP last year.

China issued local government bonds worth 883 billion yuan in August, up from the 757 billion yuan in July, with the tally for the first eight months of this year reaching 3 trillion yuan.

Over 526.6 billion yuan worth of the financing tools issued last month were special-purpose bonds for the development of public-interest projects, marking a substantial increase from 196 billion yuan in July.

The surge came after Finance Ministry unveiled guideline last month to accelerate the launch of special-purpose bonds by local governments to stabilise investment, expand domestic demand and strengthen weak areas, the Xinhua report said.

Local authorities were told to speed up issuance in August and September to complete at least 80 per cent of the annual quota by the end of this month, while the majority of the remaining 20 per cent is expected to be accomplished in October.

China has made bond issuance the sole legal way for local governments to raise debt amid efforts to forestall a systemic financial crisis, the report said.