Cash crunch for local governments in China: Dongguan is Greece

Fiscal Crunch Time in the Nation's Capitals
The Ministry of Finance reported all the nation's local governments took in 3.7 trillion yuan combined between January and July up 13.8 percent from the same period 2011, but the report also said combined spending increased 23 percent to 6.3 trillion yuan.

Year-on-year spending increases for central and local governments were 13.4 percent and 25.6 percent, respectively.

For the first half, national tax revenue increased 9.8 percent to 5.5 trillion yuan. The growth rate was 19.8 percentage points lower than the same period the year before.
How are things in the center of the manufacturing export economy?
The city of Dongguan may have run out of money altogether, according to business executives working for longtime government contractors and suppliers. Some of these companies have stopped taking orders from City Hall for fear the customer may not pay its bills.

Unofficial word on the street is that the Dongguan government may be billions of yuan in the hole. Executives whose companies have yet to be paid for past government orders have talked among themselves and estimate the city government's debt to be "more than 3 billion yuan," said Xiao Gongjun, a local printing plant executive.

Dongguan's 2012 budget plan called for 10 percent revenue growth to 29.2 billion yuan, down from 11 percent last year. But the annualized rate of revenue growth was only 2.5 percent through the second quarter.
What are local governments doing besides holding the line or cutting spending?
Meanwhile, the Hangzhou finance official said local government officials will continue working toward alleviating fiscal problems to keep the cash flowing.

At the same time, he said, local officials "hope the central government will relax its policies and that land prices will turn for the better. Then, the difficulties will pass."
One line untranslated from the Chinese version of the article: "In theory, the city is already broke; Dongguan has become Greece."


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