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Chinese local governments agree to settle bills after being sued

Tom Mitchell
ChinaFotoPress | Getty Images

A Chinese infrastructure tycoon who is suing local governments for allegedly failing to pay their construction bills said on Monday that he had reached settlement agreements totaling about Rmb700 million ($113 million).

Yan Jiehe, founder of the Nanjing-based China Pacific Construction Group, sued six local governments in January for debts totaling more than Rmb900 million. But repayment agreements have now been hammered out with four of the debtors according to Mr Yan, who vowed to pursue the other two administrations in Hunan and Shandong provinces, which owe more than Rmb200 million, to China's Supreme People's Court "if needed".

"Our lawsuits put a lot of pressure on the governments," Mr Yan said at a media briefing in Shanghai. "It means that the rule of law really works. I see great hope for China."

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Last year Mr Yan was named China's seventh richest man by the Hurun Report with a fortune estimated at $14.2 billion, while China Pacific Construction is ranked 166th on the Forbes 500 list of the world's largest companies, with annual revenues of $60 billion.

The lawsuits, believed to be the first of their kind in China, highlighted the massive debts accrued by local governments which borrowed money to build infrastructure and prop up economic growth in the wake of the global financial crisis.

According to the National Audit Office, local governments had accumulated Rmb18 trillion in debts as of June 2013, with Rmb2.8 trillion due this year

In a belated effort to tackle the potential crisis, the Chinese government has authorized local administrations to issue Rmb1 trillion worth of municipal bonds in an effort to roll over some of the debt. Beijing also instructed state banks on May 15 to continue to fund public infrastructure projects even if the finance vehicles backing them were behind on their interest or principal payments.

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In an interview with the Financial Times in February, Mr Yan said that his company had sued the six local governments to send a signal to other administrations that owed China Pacific Construction as much as Rmb50 billion. He described the tactic as "striking the mountains to shake the tigers".

At Monday's briefing, Mr Yan said that his gambit had been successful, with his company's accounts receivable from local governments declining to Rmb40 billion over recent months against a "normal" level of about Rmb30 billion.

The construction tycoon, who made his fortune in a sector traditionally dominated by state and military-backed firms, said one local government in central Hebei province that owed him Rmb140 million had previously protested it had no money. But it coughed up Rmb40 million shortly after China Pacific Construction filed the lawsuits and has also agreed to repay the outstanding Rmb100 million.

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"Before it was hard to get even Rmb4 million from them and government officials were nowhere to be found when we visited," Mr Yan said. "After the suit, our staff were received by their top leaders."

He added that another county government had agreed to pay off its debt in monthly installments of Rmb6 millions after it was threatened with legal action.

The governments targeted by China Pacific Construction could not be reached immediately for comment.