Wuhan, the largest city in central China, has publicly demanded that hundreds of local companies repay their outstanding debts, various media reports have said. The debt collection announcement, a rare occurrence, sheds light on the dire financial situation plaguing the country’s local governments even as the economic situation remains uncertainty.
In a statement published by the official Changjiang Daily newspaper, Wuhan’s finance bureau has called upon 259 companies and entities to settle their combined debts of over 100 million yuan ($14 million) at the earliest. The debtors comprise a mix of state-owned and privately owned companies, government departments, and even think tanks, as reported by official media outlets. It also includes prominent entities such as Dongfeng Wuhan Light Vehicle, controlled by the city’s state asset regulator, and Uni-President Enterprises, a Taiwanese food and beverage giant with significant operations in mainland China.
China’s local governments have been grappling with the aftermath of President Xi Jinping’s zero-Covid campaign, which strained budgets due to extensive spending on Covid-related measures such as frequent lockdowns, mass testing, and quarantine centers. A real estate crash further compounded the financial burdens, as local governments heavily rely on revenue from land sales. These factors have significantly impacted the financial stability of cities and provinces throughout China.
Analysts estimate that China’s outstanding government debts surpassed a staggering 123 trillion yuan ($18 trillion) last year, with nearly $10 trillion classified as ‘hidden debt’ owed by risky local government financing platforms.
Hidden debt is defined as any borrowing that is not included in the government’s on-budget debt but carries an explicit or tacit promise to be repaid with fiscal funds or is supported by illegal guarantees. It mostly consists of the issuing of bonds by state-owned businesses created to finance local government investments like the construction of infrastructure, including roads and bridges.
As budgets tighten, some cities have resorted to cutting medical benefits for seniors, leading to public protests. The strain on municipal finances has put other vital services at risk, further exacerbating the impact on local communities. The challenges faced by Wuhan are not isolated incidents, as other cities like Kunming, the capital of Yunnan province, and Guizhou, one of China’s poorest provinces, have also struggled with their financial situations. These cities have publicly acknowledged their difficulties and sought assistance from Beijing to avoid defaulting on their obligations.
The debt collection predicament faced by Wuhan and other cities raises critical questions about China’s economic stability and the financial health of local governments. The ability of municipal authorities to navigate these challenges and find sustainable solutions will be vital in maintaining stability and delivering essential services to their residents.
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