The Strictest Audit in History Will Open Local Government's Black Box of Debt

That's the latest on the coming audits of local government finances. Key point to remember: this will put a freeze on local government behavior as they don't want to do anything to make their situation worse or give the central government a convenient target for punishment.

The timing couldn't be worse from a financial perspective: results should be out in early October. With the Fed threatening to taper and German elections coming up, it could be the most volatile September since 2011.

This audit will be total. It will encompass all five levels of government, from the central government down to towns. It will include government projects at every level and every workplace (local governments often create an enterprise to carryout various infrastructure projects, but also for speculation into real estate). All government debt from the end of 2011 until the first half of 2013 will be examined; at the lowest level of government, debt will be examined from the end of 2005; debt from before 2012 and after 2012 will be broken out. Target areas include local government loans and credit guarantees, in all four forms of debt.

What happens if they find a massive unexpected pile of bad debt? Then they'll need a plan to offload it onto the central government's balance sheet, taking a chunk out of the forex reserves.......and depreciating the yuan.

史上最严政府性债务审计背后 打开“黑箱”

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