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China to judge local governments by their debt: Xinhua

A farmer carries a shovel over his shoulder as he walks to tend his crops in a field that includes an abandoned building, that was to be par
A farmer carries a shovel over his shoulder as he walks to tend his crops in a field that includes an abandoned building, that was to be par

BEIJING (Reuters) - China will soon rate the performance of local governments partly by how much debt they incur, as Beijing tries to wean the country off heavy government investment, state media said.

The central organization department, which oversees the appointment of senior party, government, military and state firm officials, said debt will be key when evaluating performances, according to the state news agency Xinhua.

Large-scale government investment has helped China's gross domestic product expand at double-digit rates for the past three decades. But analysts say China's economy has now hit a turning point, and domestic consumption must grow and investment fall to ensure a healthy expansion.

Having borrowed a total of 9.7 trillion yuan ($1.6 trillion) from banks as of the end of June, China's heavily indebted local governments are considered among the biggest threats to the health of economy.

Worse, there is little transparency on just how much was borrowed, from whom and by whom. Some analysts estimate local-government debt to be as high as 20 trillion yuan.

Beijing ordered an audit of government finances in July and had planned to release the results in October but never did.

Among Chinese governments, the Jiangsu government in eastern China is the most indebted, a Reuters report showed in July. Chinese media has since said the Jiangsu government has outstanding debt of at least 1.3 trillion yuan.

($1 = 6.0817 Chinese yuan)

(Reporting by Koh Gui Qing; Editing by Larry King)

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