Lending to the village people

Can't pay, won't pay

With 40 years experience of running a village, Wu Renbao will be used to making difficult decisions.

After all, Wu has managed to transform his hometown, Huaxi, into a business empire involved in steel, shipping, tobacco and textiles.

But now that Huaxi enjoys title as the China’s richest village, the major decisions on Wu’s plate focus more on how best to spend its wealth – key things like deciding the height of the local skyscraper, the recently opened Kongzhong Huaxi New Village Tower.

“The tower was my idea,” the 84 year-old mayor told China Dialogue. “Taking into account our domestic situation, we decided the height should be 328 metres. Why 328 metres? Because that is as tall as the highest building in Beijing.”

The bewildering ambitions of Huaxi regularly attract media attention because they are so out of the ordinary (see WiC126).

But to get a more representative picture of village finances in China, it might be better to look at Duyang.

Despite its location in Guangdong, one of the country’s wealthiest provinces, Duyang’s accounts are in a sorry state, with debts totalling Rmb200 million ($31.4 million).

Annual tax income is Rmb20 million but once regular expenditures are accounted for, only about Rmb500,000 is then left to service debt.

At this rate, it will take Duyang 400 years to pay off the principal, reports the Economic Observer.

The debt was accumulated in the 1980s and 1990s, when the village invested in infrastructure and schools. Due to its remote location, connecting the village to the local transport network was expensive.

It also had to spend money on primary and secondary schools, water conservancy and village enterprises.

After the investment, the expected benefits have also been slow to accrue. The village head must spend more of his time dealing with creditors as a result.

Duyang is not an isolated case. An official in Yunfu City, where Duyang is located, told the EO that heavily indebted towns and villages are a common problem. In Yunfu, some towns struggle to pay wage bills to local officials. The only way to raise cash is to sell assets such as land or lobby the provincial government for subsidies.

Research conducted by the Guangdong government looked at 20 towns in the province and found more than Rmb1 billion of official debt, with an average level of borrowing at Rmb54.3 million. “Township debt is so huge that it is beyond the actual ability to pay,” it concluded.

Were these liabilities considered in the major report released earlier this year by the National Audit Office, which put government debt at Rmb10.7 trillion?

A recent study by independent research firm Beijing Fost Economic Consulting suggests not, saying that the official numbers significantly underestimate debt in town and villages.

Once that is taken into account, the grand total of government debt could be Rmb13.5 trillion.

A major problem in quantifying town and village debt is that much of it goes unreported to the higher echelons of government, the EO says. Provincial governments struggle to track what is going on financially at the township and village level. When fact-finding missions are undertaken, village officials are difficult to pin down or give data that understates the true figures.

For the moment, the subterfuge has not had fatal consequences. “The reason why the current township debt has not posed a threat to economic development is that they have not gone bad collectively,” Cheng Jiansan, of the Guangdong Academy of Social Sciences told the EO.

But if places like Duyang do start to give up on their loans, then we might start hearing a lot more about the debt crisis in China’s villages too.

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