Fighting local govt debt

Imagine what would happen if a listed company did not publish its balance sheet. Investors would have no idea of what the company's assets are, what plants, property and equipment it owns, what are its liabilities and its debt, and how much of it is short term and how much long term. Clearly, a rational investor, given the absence of these key figures, would choose not to buy shares in the company, or would, at least, require a very high rate of return. What investors dislike most is uncertainty; they are happy to take risks going forward - because no one can predict the future - but they will not accept the muddy picture of facts as they stand today.

Knowing the exact amount of debt that China has, how this is distributed among the various cities, what are the criteria used when large infrastructure investments are made, what are the expectations of future revenues derived from those investments and so on are what investors need to know. In other words, providing a full understanding of the country's local finances is a key factor in persuading foreign investors that China remains - as it has been for more than three decades - a safe place to invest even for long-term gains.

The sooner these results are published the faster the idea that China's top 100 cities are like 100 "Greeces in the making" will dissipate to the benefit of the cities, which will then be able to attract even more funds from investors and thus contribute to the country's economic sustainability.

The author is head of China Economic Policy Program and associate professor of finance at Nottingham University Business School, China

(China Daily 12/18/2013 page9)