SOME of China’s most indebted local governments are on a hiring spree, a move that analysts say could put fragile regional finances under more strain, with officials seeking to create jobs for a record number of graduates entering the workforce this year.

China’s huge and rising local government debt, totalling US$9 trillion, amounts to about half the nation’s gross domestic product (GDP). It is one of the biggest threats to fostering sustainable growth in the world’s second-largest economy.

Beijing has said defusing these debt risks is one of the government’s major tasks this year. It is also prioritising job creation in an economy still reeling from years of costly lockdowns, travel curbs and other Covid containment measures.

In poorer areas, the task of providing jobs falls more squarely on local governments, even as they struggle to raise revenue through income tax and state land sales.

Jack Yuan, vice-president and senior analyst at Moody’s, said: “This type of strategy could be partly calculated to keep educated young people within the province, rather than having them leave for more developed regions.”

However, “budgetary and debt pressures are more acute for these provinces, so increasing expenditure comes with additional fiscal risks,” he noted.

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The provinces of Gansu and Yunnan, as well as the region of Guangxi, are set to record the biggest percentage increases in hiring for civil servants in China this year, said Offcn Education Technology, one of the country’s largest tutoring firms for the public-service examination.

Gansu, in China’s arid, remote north-west, plans to hire 4,249 civil servants, nearly 80 per cent more than last year. Yunnan and Guangxi, in the country’s mountainous frontier to the south, will respectively add 5,696 and 6,781 personnel – an increase of 59 per cent and 55 per cent.

Financial media outlet Caixin reported that the overall number of jobs being added across mainland China’s 31 provinces, regions and municipalities, is around 190,000, a 16 per cent increase from 2022.

The local governments adding the most jobs in relative terms are also among the most indebted. Yunnan’s outstanding debt-to-fiscal-revenue ratio hit 1,087 per cent last year, the highest among all provincial-level economies. Gansu was third at 970 per cent, and Guangxi, fifth at 910 per cent, research by Chinese brokerage TF Securities indicated.

The local governments of Gansu, Yunnan and Guangxi did not respond to a request for comment. Reuters could not establish exactly why the governments are ramping up hiring, and how doing so will impact their finances. But it is causing anxiety among economists.

Nie Wen, a Shanghai-based economist at the investment firm Hwabao Trust, said: “If state land sales continue to worsen in those regions, such a large-scale government hiring spree will be unsustainable.”

Employment first

In his first speech as China’s new premier this month, Li Qiang said the country needed an “employment-first” agenda, with the government setting a job creation target of 12 million, up from last year’s 11 million, even as it aims for a conservative GDP growth target of around 5 per cent this year.

China needs to create jobs for a record 11.58 million college graduates expected to join the workforce this year – a formidable task, given that the jobless rate for those aged 16 to 24 is at 18.1 per cent, hovering near an all-time high.

The jobs being sought by Gansu, Yunnan and Guangxi are mainly in the law, finance and accounting departments; Offcn Education Technology said that application requirements for the roles are more friendly to college graduates.

A civil servant in Gansu, who spoke to Reuters on the condition of anonymity because he was not authorised to speak to the media, said the hiring spree is partly to replace retiring staff. The source added that it also comes as some local employees have also suffered pay cuts.

In addition to central government funding, many of China’s localities rely on so-called local government financing vehicles (LGFVs) to raise extra capital from bond markets for the likes of infrastructure projects.

A report by the International Monetary Fund last month found that the total debt of China’s LGFVs has swelled to a record 66 trillion yuan (S$12.7 trillion), from 57 trillion yuan last year.

These LGFVs, which proliferated after the global financial crisis as a way to let local governments get round a ban on direct borrowing, are not technically guaranteed and many hold assets of dubious quality, such as roads to nowhere and empty airports, analysts say.

While there have been no public reports of an LGFV default, some have had loans extended. Moody’s Yuan said local governments including Gansu have faced increased refinancing pressure to meet their debt obligations.

This is why he and others are concerned that any attempt to create jobs and pursue growth too aggressively could lead to more financial problems in places already fiscally stretched.

Iris Pang, chief economist of greater China at ING, said: “Usually, this high growth rate and high debt rate is a very risky story.” REUTERS