2013-09-02

Wuhan's Debt Worries

From 2011: Building Boom in China Stirs Fears of Debt Overload
In the seven years it will take New York City to build a two-mile leg of its long-awaited Second Avenue subway line, this city of nine million people in central China plans to complete an entirely new subway system, with nearly 140 miles of track.

And the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.

The construction frenzy cloaks Wuhan, China’s ninth-largest city, in a continual dust cloud, despite fleets of water trucks constantly spraying the streets. No wonder the local Communist party secretary, recently promoted from mayor, is known as “Mr. Digging Around the City.”

Fast forward to 2013: 武汉偿债隐忧 (Wuhan's Debt Worries).

The Google Translate version is below, here are the highlights: The Wuhan government was in debt to the tune of 204 billion yuan by the middle of 2012, and at the end of 2011, it's debt to "financial capability" ratio was already 185%. According to the most recent audit, nine provincial capitals have ratios above 100%, but when adding in debt that the local government is responsible for, Wuhan's ratio is probably the highest of all provincial capitals in China, at nearly 220%. The article is not very clear as to what debt is what, it tosses out a lot of numbers with little aggregation. For example, at one point the article states Wuhan borrowed 400 billion between 2010 and 2012, of which about half remains, which does not seem like a problem given the growth of the economy. It would be a problem if there were an outright recession in China, but no one is factoring that into these assumptions. Therefore, the debt picture is clearly worse than the numbers within the article show (or does show, but fails to clearly aggregate).

To put some perspective on the numbers, according to the Chinese wiki for Wuhan, the city's GDP was 800 billion yuan in 2012 and grew at 16% for the year. Government statistics estimate it will surpass 1 trillion yuan in 2013. The numbers are wacky: the news articles say GDP grew at 12%, but GDP jumped from 650 billion yuan in 2011 to 800 billion in 2012, a gain of 22%.

Here's a look at the stock mentioned at the end of the article. Head-and-shoulders may be forming, with a target loss above 25% if the pattern completed and broke; losses would exceed 30% from current level.


began early in August, for all levels of local government debt "audit storm", local government bonds once again to this sensitive and unavoidable issue, placed under the spotlight.

In many cities in the list to be audited, in the central region of the central city of Wuhan, due to the rise in recent years, large-scale urban construction and debt, its debt risk control also became the focus of attention. For the Wuhan government debts, anecdotal versions vary, but so far, the Wuhan government official has not yet disclosed the details of the specific debt.

Recently, the Economic Observer newspaper obtained a copy from the Office of the Commissioner of the Ministry of Finance in Hubei research report shows that as of June 2012, the Wuhan City debt balance up to 203.705 billion yuan. The end of 2011, the Wuhan City local government debt balance 196.447 billion yuan, compared with the level of government in Wuhan comprehensive financial 105.822 billion yuan, up 185.64 percent debt ratio - the highest warning level has exceeded 1.5 times the United States.

Related to this, at the end of 2012 to early 2013, the Commission published for 36 local level government debt audit showed that in 2012, there are nine provincial capitals first municipal government bears the responsibility to repay the debt ratio exceeds 100% , the highest of 188.95%, such as with the government bears responsibility for guaranteed debt, the highest rate of 219.57%. If this estimate, Wuhan is close to cities with the highest debt. "The new round of debt against Wuhan audit is currently in progress, the results no later than before the Third Plenary Session of the eighteenth out." August 27, Audit Office of the Commissioner's Office in Wuhan, a source told The Economic Observer reporters. As for whether this is the debt the highest rate of Wuhan city's problems, the person to being audited refused to comment.

City debt pressure

Despite the Wuhan government debt is a major concern, but so far has not been announced Wuhan exact official government liabilities - at the local politicians, it seems to be a sensitive topic. "In fact, the debt is not the highest rate of Wuhan city, but belongs to a class of high." July 28, Hubei, a source close to the audit of local government who work on the Economic Observer newspaper reporters.

The Economic Observer obtained from the Ministry of Finance in Wuhan, Hubei Province Office of the Commissioner for the level of government debt situation of a research report, as of June 30, 2012, the Wuhan government debt amounted to 203.705 billion yuan, compared with 2011 at the end of 1964.47 one hundred million yuan net increase of 7.258 billion yuan, a net increase of 3.69%.

Debt balance by Type of Debt, direct debt 144.854 billion yuan, 58.851 billion yuan secured debt (end of 2011 was 146.629 billion yuan, respectively, and 49.818 billion yuan), on average, accounted for the balance of the debt ratio was 72.84% and 27.16%; nature by unit points, organs 125 million yuan, 48.905 billion yuan career, 140.806 billion yuan of debt financing platform and other units of 13.869 billion yuan.

The above data show that local investment and financing platform for the Wuhan municipal government debt accounted for about 68.85 percent debt ratio - which means that the investment and financing platform for local debt in Wuhan, a major component.

Wuhan City, one of the various types of investment and financing platform for more than 10, the largest of three voted for the Wuhan city, Wuhan Real Estate Group and Wuhan Metro Group. Data obtained from the Economic Observer reported that, as of the end of 2012, Wuhan City Investment Total liabilities 116.9 billion yuan; the end of 2011, Wuhan Real Estate Group liabilities of 40.78 billion yuan; Wuhan Metro Group Total liabilities 31,420,000,000 yuan.

From the point of view of debt sources, Wuhan City in 2010 -2012 in June, total direct debt 437.185 billion yuan, 376.365 billion yuan of bank loans which accounted for 86%, 27.148 billion yuan bond issue 6%, lending accounted for 9.332 billion yuan of debt 2 percent, 4.239 billion yuan of special loans accounted for 1%, other 5% 20,102,000,000 yuan. Thus seen, Wuhan relies mainly on local government financing or bank loans, accounting for 86% of total debt.

Debt under the Wuhan local governments saddled with enormous pressure to repay. The aforementioned report revealed that from January to June 2012 in Wuhan debt 31.301 billion yuan, of which: Repayment of 29.66 billion yuan of financial funds, accounting for 94.76%, June 30 overdue debts 4.06 billion yuan, of which shall be repayable funds 3.803 billion yuan, accounting for 93.67%. More than that, the Wuhan government is facing a debt repayment peak. From the year ended June 30, 2012 statistical situation, has formed directly on the debt repayment in future years should be: 2013 31.059 billion yuan, accounting for 22.06% in 2014, 31.176 billion yuan, accounting for 22.14%, 14.335 billion yuan in 2015 , accounting for 10.18% ,2016 to 2020 40.534 billion yuan, accounting for 28.79%, 2021-2025 was 9.038 billion yuan, accounting for 6.42%, in 2026 after 2.413 billion yuan, accounting for 1.71%.

2013 and 2014 for two years total 62.235 billion yuan, accounting for 44.20 percent of total debt - the report predicts: "From a static perspective, in 2013 and 2014 will be the peak of Wuhan city level government debt."

Urban peak

Wuhan local debt directly related, Wuhan is in a large-scale urban construction peak. "Wuhan municipal infrastructure, history too much debt." Turning to the controversial recent massive Wuhan Urban Construction, Wuhan Municipal Committee Ruan made on several occasions issued such a feeling.

In fact, quite a long time, as the central region of the city, Wuhan urban infrastructure lags behind. According to the Economic Observer newspaper reporter, an important reason is that the tax system reform, Wuhan as a "heavy duty area", the local fiscal balance is quite limited, which to some extent affected the Wuhan urban construction investment.

In the 1980s, Wuhan City, the financial contribution of the central ranked second only to Shanghai, as the country plans to separate the city in the first, but the accumulation of local finance is the last first. Retention in the proportion of local finance, all municipalities and cities is generally 30% -50% or more, while only 16% -17% of Wuhan. "The early 1990s, Wuhan was turned over to the central government wants right proportion fell from 83% to 82.5%, for a number of city leaders twists and turns, but no final approval." The former Wuhan Municipal Economic Commission, a person on the Economic Observer newspaper reporter recalls, "history is not without Wuhan local fiscal revenue, but a lot of revenue turned over to the central government, leading to its own balance is limited, a serious impact on urban development."

The Wuhan Urban Construction lag a direct result of a long period of time, Wuhan urban landscape as "dirty, chaotic, and poor" image known throughout the country, folk joke Wuhan as "China's largest county." Urban construction lagged, in turn, restricts the Wuhan's economic development, especially for investment work had a negative impact. In the early 2000s, when the mayor of Wuhan, Wuhan Li Xiansheng face to sink in the country "two sessions" to shout: "Where Wuhan?"

In this context, how in a short time to speed up the construction of urban infrastructure in Wuhan, Wuhan has become the government faces a difficult problem. Another macro background is that, by the end of 2008 national four trillion economic stimulus policies, Wuhan "Short term, big investment," the urban construction as opportunities. Also in that year, the mayor of Wuhan Ruan issue, opened in Wuhan historical "Ruan hair era."

"It should be said that large-scale urban construction in Wuhan, is the combined result of three factors. Firstly, Wuhan Urban Construction's own development needs; second, four trillion stimulus brought about macroeconomic environment; Third, for the local rulers, more susceptible to engage in urban construction achievements. "politicians do this to a Wuhan Economic Observer newspaper reporter commentary.

In the practical level, despite the tax system reform, local government finance Wuhan has increased, but relative to the massive infrastructure investment, local governments still seem utterly inadequate Wuhan. In 2011, for example, when the annual full-caliber financial income Wuhan 179.6 billion yuan, remove to the central government and provincial finances, Wuhan, the level of government spending 75.6 billion yuan, which is used to support economic development expenditure and livelihood, rural investment and administrative operation costs and other recurrent expenditure of about 32.3 billion yuan, accounting for 42.7% of municipal-level expenditures. Therefore, can be used for urban construction investment funds is indeed limited.

In contrast, in 2011, Wuhan urban construction projects only as high as 72.582 billion yuan of total investment, Wuhan Boulevard, seven Yangtze River Bridge, Second Link (Hankou section, water and other East), white sandbar Avenue, East Sand Lake connectivity and other 21 major focus project also started. Incumbent party secretary of Wuhan Ruan hair has revealed that most of the time, Wuhan, a total of more than 5000 construction site while construction. Ruan hair also once been friends joked "Curse dig" secretary.

Financial resources and investment demand huge gap under the Wuhan government only through massive borrowing, to complete the construction of the city "leaps and bounds."

The aforementioned report revealed that from 2011 borrowing situation, the direct debt 27.793 billion yuan, the project loans 19.803 billion yuan, accounting for 71.25%, while the project loan, the public welfare projects 19.368 billion yuan, accounting for 97.8%, which is mainly used for urban roads, bridges and other infrastructure.

Debt means "to land dependent" of

Wuhan's debt is like a snowball, is snowballing. The aforementioned report revealed that from 2008 to 2011, the government bears the responsibility to repay the debt balance was 74.76 billion yuan, respectively, 132.809 billion yuan, 157.255 billion yuan, 143.528 billion yuan. This means that only four years, nearly doubling the Wuhan government debt balance.

And with many mainland cities, Wuhan debt mainly rely on land sales, as of June 30, 2012, the Wuhan government direct debt balance of 144.854 billion yuan, the major sources of finance debt service funds, accounted for 97% or more, where land revenue accounted for 44% or more.

The financial consequences of large-scale urban funding gap, but also to a certain extent, boosting the land market in Wuhan "crazy." 2012, many cities in the domestic land revenue decline in the context of Wuhan "adverse" growth - Wuhan, the city's land transfer revenue in 2012 amounted to 94.9 billion yuan, an increase of 61%, total revenue is ranked second only in Shanghai, while the increase of the nation.

But on the other hand, in 2012, Wuhan land transaction prices have a "cool down" sign. According to statistics, in 2012 in Wuhan auction of 240 plots, there are 218 plots because only one purchaser only end at the opening price, the proportion of the total volume of up to 90.83%.

"Last year, Wuhan land transfer revenue is higher, not because the land transaction market hot, but because of the large amount of land supply in Wuhan." Central Branch of the China Index Research Institute research director for the Economic Observer newspaper reporter Guo-Zheng Li analysis, with the Wuhan two ring within the "Villages" project trend near the end: "The future price of land in Wuhan will be able to sell less and less."

2013 first half of Wuhan remise 99, closing an area of ​​5,511,900 square meters, up the first half of 2012 rose 9.32%; land amounted to 29.897 billion yuan, up 4.04 percent year on year in 2012 - rose significantly slowed down.

In fact, the land market is facing downside risks, which may lead to local government debt risk, but also aroused the concern of the authorities in Wuhan. It is reported that Wuhan municipal government has set up a special committee debt management, allied government borrowing and risk control.

Reid, chairman of Wuhan City to vote in this year's Hubei super "two sessions" to accept the Economic Observer newspaper reporter, said: "includes the City investment companies, including our annual borrowing program, the debt must be established by the Committee."

More than that, the debt repayment, the Wuhan government has also tried to reduce the reliance on land revenue. Wuhan City is the largest local investment and financing platform - Wuhan City investment company, for example, in addition to land revenue, the part of the operating assets, including water, sewage treatment, gas, real estate, exhibition hall, also packaged them.

According to Reid ultra revealed that in 2012, Wuhan City Investment tap revenue of nearly 20 billion yuan, gas revenue in 3000 to 4000 million yuan between; estate back section 700 million yuan in revenue last year. In addition, the Wuhan City Investment also owns the largest in central China, the country's third International Expo Center, will also be a substantial contribution to revenue in 2013.

In addition, the Wuhan City Investment also owns listed company Wuhan Holdings (600,168). "We can put part of the municipal infrastructure projects packaged into operation of listed companies, asset securitization to achieve equity financing, thus reducing the dependence on debt financing." Chao said Reid.

"We are asking 2013 City investment company operating cash flow exceeded 10 billion yuan." Reid Chao said, "debt risk is definitely there, but definitely manageable."

No comments:

Post a Comment