Mayor of Chinese city says still need to lend assistance to failing government firms

Chongqing mayor Huang Qifan leaves the Great Hall of the People after a plenary meeting of the National People's Congress (NPC), China's parliament, in Beijing, China, March 4, 2016. REUTERS/Jason Lee/Files

Vastavam web: The mayor of one of China’s most high-profile debt-strapped cities said it will have to lend assistance to failing local government firms, even as he tries to bring the city’s finances under control.Baotou, a city of almost 3 million in China’s Inner Mongolia Autonomous Region, shot to prominence as an example of a local government that has overextended in pursuit of rapid economic growth. In August, it canceled a 32 billion yuan ($5 billion) subway project, saying its finances could not support the plan and later admitted it had over-reported government revenue.

While Beijing has stressed local authorities cannot serve as a backstop for borrowing by government firms, Zhao said it would be impossible for the city government to not step in to help local government firms facing default.The city government should take over the cost of providing social services such as running schools, he added.Zhao added he was in the process of verifying the level of “hidden” debt in Baotou, including debt of local government financing vehicles.

Corporate and financial institutions’ heavy reliance on government intervention – a legacy of China’s planned economy system – will take years to overcome, he said.