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China Facing Financial Troubles from Local Governments


China could be facing a possible debt crisis according to an official audit report released on Monday.

It showed that debt in local governments had shot up by about 70 percent since the end of 2010, totaling to nearly $3 trillion. Some analysts worry that situation is worse than the report shows.

China relied on locally financed construction projects to provide employment when the global financial crisis happened in 2008.

But economist Nicholas Lardy from the Peterson Institute said the revenue from these projects won't cover loan repayments.

"A lot of the money is being used to build metro systems," he said. "Like all metro systems, except Hong Kong's, they lose money. Their revenues mostly cover operating expenses."

Experts say China has enough money in its national savings to prevent a serious debt crisis from breaking out but some say the situation is big enough to keep an eye on.

Ruling party leaders recently released a statement promising to prioritize resolving local government debts.

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