China's audit of local government debt may find that borrowings have ballooned to 17.5 trillion yuan ($2.85 trillion) currently from 10.7 trillion at the end of 2010, according to Societe Generale, representing a rise of over 60 percent.
China's State Council on Sunday ordered the National Audit Office to conduct a broad audit of debts incurred by government agencies, which would be the country's second-ever comprehensive review of nationwide spending as Beijing steps up efforts to contain risks surrounding leverage in the world's second largest economy.
"Coming out only several days following the announcement of several easing measures, the audit request seemed to us another message from the leadership of its resolution to contain debt risk despite rising concern over growth," Wei Yao, China economist at Societe Generale wrote in a report on Monday, referring to the mini package of fiscal stimulus measures to bolster growth the government unveiled last week.
"This is nonetheless a sensible choice, in our view. However, such a restrained easing stance supports our call for further growth deceleration in the near term," Yao said.
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Local government debt is regarded as a key risk to the financial stability in China, with ratings agency Fitch cutting the country's long-term local currency credit rating to A-plus from AA-minus earlier this year.