Local debt crisis not likely in China

BEIJING - China is not likely to fall into a local government debt crisis as local debts were invested mainly in construction projects, according to a commentary in Monday's People's Daily, the flagship newspaper of the Communist Party of China.

The commentary noted that many countries hit by the debt crisis used their debts for paying civil servant salaries, pensions and other expenditures, and the money was used without producing further economic benefit.

In contrast, China's local government debt was primarily used for construction projects, such as the construction of railways, expressways and water facilities. The debts eventually became government assets, the paper said.

Taking into consideration assets stemming from the debts, the government can afford to repay most of its debts, the commentary said.

The paper thus ruled out the possibility of a local debt crisis in China.

Risks associated with mounting government debts have been a grave concern in China for years, as risk may spill over into the entire financial system and affect economic growth.

Last month, the National Audit Office (NAO), the country's top auditing body, announced it would organize a comprehensive government debt audit.

An NAO audit conducted in 2011 found that local government debt totaled 10.7 trillion yuan ($1.73 trillion) at the end of 2010, representing more than 26 percent of the year's gross domestic product.

In early June this year, the NAO said that a follow-up audit found total debt of 3.85 trillion yuan owned by 36 local governments by the end of 2012, up 12.94 percent from 2010.