Government debt default threatens stability

Too many risks are riding on governments' defaults of debts. If the problem cannot be solved timely and properly, the government debt issue in China will threaten the economic and social stability, says an article in the Southern Metropolis Daily. Excerpts:

Some infrastructure projects in Guangxi, Shandong and Guangdong were suspended after local governments were unable to pay the construction companies on time. Some private construction bosses even committed suicide after failing to repay the loans they had borrowed to pay wages of migrant workers. More construction firms will go bankrupt if the governments do not repay their debts.

But none of the relevant local governments show any concern about defaulting on payment. They continue to act so assured and bold as if they have nothing to regret. Justice seems to be always on the governments' side.

Considerable governments' debt comes from their needs to boost economy. When the manufacturing industries are weak, local governments resort to increasing the investment in infrastructure constructions to maintain a fast growth, on paper.

Also, most of the debts are passed down from their predecessors. And it is unrealistic, in the point of view of officials, to let current officials to repay the past debts.

Local governments' revenue from selling land has also shrinked markedly since last year. The private construction firms have become a victim of the government debt issue.

It is convenient for the governments, in the absence of rule of law, to transfer the debt burden to the private enterprises.

The governments are losing their credibility in this way. The brazen defaults of debts weaken investors and private business owners' confidence in the governments, which always claim they will try their best to serve the healthy growth of private enterprises.

In fact, some local officials only pay lip services. Some decision-makers in the local governments only think of their own promotion, and turn a blind eye to the balance sheet and image.

The central government must make its local government debt size and structure more transparent. No official should get promoted through boosting a debt-driven growth. There should be independent parties to evaluate the feasibility of the construction projects proposed by the governments.

If more and more private firms cannot pay wages of the migrant workers, the governments' defaults of debts will aggravate the tensions and conflicts in the society.