China moves to audit local govt spending

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CHINA'S NATIONAL AUDIT Office (NAO) is to start a nationwide audit to address concerns about rising debt from local government projects which stood at Rmb10.7tn (US$1.7tn) at the end of 2010 - accounting for some 26% of China's  Rmb40.1tn GDP that year.   

But a recent IMF estimate puts China's total government liability, including government-led infrastructure development projects, in excess of 45% of GDP. 

Chinese media report that the State Council has made the audit campaign an "urgent" task, and that the audit process could start as early as August 2013. 

The fact that Chinese government debt has increased in recent years comes as no surprise and, indeed, has been part of a conscious government policy to boost domestic consumption after the global economic recession lowered demand for China's exports in key markets such as Europe and North America. 

China's much-vaunted Rmb4tn stimulus package rolled out in 2009 was a direct response to the drop in demand in China's major export markets after 2008 and was hailed at the time as a positive move to shift China's economy from an over-reliance on exports to a more balanced mix between exports and domestic consumption. 

So this recently announced audit should be seen against this backdrop - it's an active measure to assess how much money has been spent at local government level and how productive those investments have been. 

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