Detroit bankruptcy sends tremors through China

BEIJING -- Detroit’s deep financial difficulties may have prompted China to look more closely at its own debt risk.

On Sunday, the Chinese government announced that it would be undertaking a comprehensive audit of local debt in China, an issue that has worried economists and others for its potential to shake the world’s second-largest economy. China amassed local government debt as it powered steadily through the global financial crisis in 2008, and experts question whether local governments are now burdened with more than they can manage.

Concerns about the debt have raised questions about the strength and durability of the Chinese economy in years to come.

The audit was announced in one sentence on the website of a division of the State Council, China’s Cabinet. Hu Xingdou, a professor of economics at the Beijing Institute of Technology, said it was a welcome signal.

“The central government must have understood the local government debts issues very well,” Hu said in a telephone interview. “The issues include: inaccurate financial data, bank bad debts, too many local government debts, excess production capacity, local government officials blindly investing in order to pursue political achievements.”

Other observers and Chinese state media said Detroit’s financial problems deeply concerned China and probably helped prompt the call for the nationwide debt audit. Detroit this month became the largest American city ever to declare bankruptcy.

Ye Qing, deputy chief of the statistics bureau in Hubei province, told the Beijing News that Detroit was a wake-up call for China’s central government, which moved into action soon after Detroit made its announcement. In an essay he wrote for a Shanghai newspaper, Ye said China has “too many types of government debts and there is a tendency to go out of control.”

The State Council gave no timeline or specific guidelines for the audit.

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