Billions-worth of flaws in Chinese local state debt

CHINA’S state audit office has uncovered 530 billion yuan (£54bn) worth of irregularities with local government debt, leaving investors wondering how much work remains to be done to clean up after 2008’s stimulus-fuelled credit binge.

The findings of the National Audit Office report published yesterday reveal a litany of bad practice.

However, the figure is barely a fraction of the two to three trillion yuan of sour loans economists reckon are buried in the 10.7 trillion yuan of debt local governments had by the end of 2010.

Around half of the enormous local government debt pile was amassed after Beijing launched its massive economic stimulus programme to counter the 2008 and 2009 global financial crisis, with thousands of local government financing vehicles borrowing large amounts -- often from state-backed banks.