China still paying for the 2008 Beijing Olympics
The mainland is still paying for Games that cost US$ 70 billion. Local government financing units borrowed heavily for new public works but now must pay back 10.7 trillion yuan, 80 per cent to banks. The grandiose facilities now lie underutilised, falling short of expected revenue.
Beijing (AsiaNews/Agencies) – China spent a record US$ 70 billion on the 2008 Beijing Olympics. Now it is time to pay. Local authorities that raised capital to boost economic growth now must repay investors for the bonds they sold. However, they are having a hard time doing so, something that could badly affect many banks.
Beijing-based government financing units have to pay 16.2 billion yuan (US$ 2.5 billion) next year plus interest to investors. A further 11.6 billion yuan matures in 2013 and 37.6 billion yuan in 2014.
In order to pay its bills (which dwarf the estimated US$ 15.3 billion budget for next year’s London Games), Beijing sold ten-year bonds. However, rising inflation is pushing up yields. In August, the yield on 10-year bonds hit 5.92 per cent, the highest in three years.
Local financing units sold many bonds on the expectation that rapid economic growth and financial stability would help them repay the debt. The opposite has happened.
Concerns are now increasing that local government financing units across China will struggle to pay their debts that total 10.7 trillion yuan, 80 per cent to banks, this according to National Audit Office data published in June.
The same is true for debts incurred under the government’s stimulus package, which was originally implemented to boost the economy through infrastructural development (local roads, highways and railway), but which failed to bring the expected payoff.
Standard & Poor’s estimates that as much as 30 per cent of China’s lending to local governments may go sour, and may end in a wave of bad debts for banks.
Beijing, a city of 19.6 million people, had total debts of 374.5 billion yuan at the end of 2010, 61.7 per cent guaranteed by the central government. That compares with 303.3 billion yuan for the northeast province of Jilin, which has 27.4 million people. At present, to fund more public works and sustain economic growth, local governments continue to borrow.
“Beijing runs perennial budget deficits like most other cities in China, which means any sizable bond redemption would put a severe strain on the city’s budget,” said Victor Shih, a professor at Northwestern University in Evanston, Illinois, who analyzes China’s local government finances. In fact, “Bond yields are heading up, so refinancing will be much more costly.”
Gui Guan, an official with Beijing’s Finance Bureau, said the companies that built Olympic-related infrastructure were “commercial”. Overall, the Beijing Olympic Games were profitable, with revenue exceeding what it said was a total cost of 19.3 billion yuan. However, he did not explain if overall costs included those by “commercial” firms or were restricted to public companies or firms guaranteed by the government.
For instance, the Beijing Capital Highway Development Group Co., which builds roads, would be hard pressed paying off its debt were it not for the municipal subsidies it receives, Bloomberg reported. Such a problem, according to the US news agency, is widespread.
Still, China does not have a large sovereign debt and so is able to cover local public liabilities.
Many remember that Greece, which spent US.9 billion to host the 2004 Athens Olympics, saw its debt rise to 143 per cent of gross domestic product, forcing its government to accept a bailout by other European governments to stay afloat.
Both Beijing and Athens built grandiose Olympic facilities, far bigger than needed that are now underutilised.
Beijing Bird’s Nest Stadium has been rarely used since 2008, most notably on 6 August, when it hosted the final match in the Italian Football (soccer) Super Cup between the teams of Inter and Milan.
Beijing-based government financing units have to pay 16.2 billion yuan (US$ 2.5 billion) next year plus interest to investors. A further 11.6 billion yuan matures in 2013 and 37.6 billion yuan in 2014.
In order to pay its bills (which dwarf the estimated US$ 15.3 billion budget for next year’s London Games), Beijing sold ten-year bonds. However, rising inflation is pushing up yields. In August, the yield on 10-year bonds hit 5.92 per cent, the highest in three years.
Local financing units sold many bonds on the expectation that rapid economic growth and financial stability would help them repay the debt. The opposite has happened.
Concerns are now increasing that local government financing units across China will struggle to pay their debts that total 10.7 trillion yuan, 80 per cent to banks, this according to National Audit Office data published in June.
The same is true for debts incurred under the government’s stimulus package, which was originally implemented to boost the economy through infrastructural development (local roads, highways and railway), but which failed to bring the expected payoff.
Standard & Poor’s estimates that as much as 30 per cent of China’s lending to local governments may go sour, and may end in a wave of bad debts for banks.
Beijing, a city of 19.6 million people, had total debts of 374.5 billion yuan at the end of 2010, 61.7 per cent guaranteed by the central government. That compares with 303.3 billion yuan for the northeast province of Jilin, which has 27.4 million people. At present, to fund more public works and sustain economic growth, local governments continue to borrow.
“Beijing runs perennial budget deficits like most other cities in China, which means any sizable bond redemption would put a severe strain on the city’s budget,” said Victor Shih, a professor at Northwestern University in Evanston, Illinois, who analyzes China’s local government finances. In fact, “Bond yields are heading up, so refinancing will be much more costly.”
Gui Guan, an official with Beijing’s Finance Bureau, said the companies that built Olympic-related infrastructure were “commercial”. Overall, the Beijing Olympic Games were profitable, with revenue exceeding what it said was a total cost of 19.3 billion yuan. However, he did not explain if overall costs included those by “commercial” firms or were restricted to public companies or firms guaranteed by the government.
For instance, the Beijing Capital Highway Development Group Co., which builds roads, would be hard pressed paying off its debt were it not for the municipal subsidies it receives, Bloomberg reported. Such a problem, according to the US news agency, is widespread.
Still, China does not have a large sovereign debt and so is able to cover local public liabilities.
Many remember that Greece, which spent US.9 billion to host the 2004 Athens Olympics, saw its debt rise to 143 per cent of gross domestic product, forcing its government to accept a bailout by other European governments to stay afloat.
Both Beijing and Athens built grandiose Olympic facilities, far bigger than needed that are now underutilised.
Beijing Bird’s Nest Stadium has been rarely used since 2008, most notably on 6 August, when it hosted the final match in the Italian Football (soccer) Super Cup between the teams of Inter and Milan.
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