Govt debt not ‘critically high’: ex-minister

The debt piled up by local governments is estimated to be in excess of 20 trillion yuan ($3.2 trillion), a figure much higher than official estimates but still not "critically high," said former finance minister Xiang Huaicheng on Saturday at the 2013 Boao Forum in Hainan.

Xiang, who was in office from 1998 to 2003, said the debt of the central government is between 7 trillion and 8 trillion yuan. "The account book of the central government is relatively clear compared to local governments, to whom the loans are always issued without transparency."

Xiang's remarks triggered widespread debate online. Many netizens were shocked by the amount and questioned the government's ability to balance the account.

Xiang added the debt ratio against total GDP, which stood at around 40 percent in 2012, similar to that of 2011.

Despite the staggering figure, Xiang laid out several reasons why the debt should not be a source of concern. He said the ratio is not at a critical level, adding that domestic debt accounted for 95 to 98 percent of the total and that no particularly bad debt had been detected so far.

Tian Yun, chief editor of the China Macroeconomic Information Network, told the Global Times that he is worried that local governments have been driving economic growth with excessive investment.

"It is very dangerous when a lot of investment is borrowed and directly creates debt." Tian said if local governments don't stop driving the economy through investment, the debt would keep growing.

Tian added that economic measures alone may not be able to solve the current debt situation.

"Government officials at lower levels have huge power without supervision. Only through openness of financial budgets and the streamlining of administrative power can this be changed," he said.

Xiang also said that the central government attaches great importance to the "sustainability" of the debt and would keep an eye on how local governments would repay it.