SHANGHAI (Reuters) - Checks on some private-partnership projects (PPP) and government investment platforms in China have found that some local authorities are still up to “little tricks” and borrowing more debt than needed, the People’s Daily newspaper said.
One local authority department, for example, was found to have launched a PPP project to build a much bigger-than-required office building when it only had six staffers, the state-run newspaper reported on Monday citing an unnamed official at a city’s finance bureau.
Some governments were also shelving all risk for PPP projects by guaranteeing losses, or providing commitments to persuade financial institutions to dole out financing, the newspaper said.
“These actions disrupt the market order and also exacerbate financing risks. These loopholes must be closed in order to eliminate hidden dangers,” it said.
The Ministry of Finance with other relevant departments were taking action to implement clear policies to govern such behavior.
China has been encouraging the use of PPP to alleviate the debt burdens of its local authorities, who in the past have used debt to finance projects such as bridges and municipal works with less-than-robust analysis on future returns.
It has also launched a market in asset-backed securities (ABS), a financing instrument via which a wide range of assets such as loans, real estate, toll ways and scenic parks have been converted into tradable bond-like securities.
China’s growing debt has been singled out by analysts and policy makers as one of the biggest risks to its economy, prompting authorities to tighten regulations over the past year to curb risky and speculative forms of lending.
Reporting by Brenda Goh; Editing by Shri Navaratnam