Chinese localities seek ways to borrow money for economically inefficient projects, posing a public debt threat to the national economy.

Nhu Chau, a city with a population of about one million people in Henan Province, central China, is having to borrow money from health workers to get money to build a new hospital. If the employees have no money, they are required to borrow from a bank to bring money back to the hospital.

Doctors and nurses in Nhu Chau complained on social media and local media about the pressure to take thousands of dollars to borrow money to build a hospital. "This is like rubbing salt in a wound," a person wrote on a forum for city government workers. Many others also question why big government projects require money from low-level employees.

Nhu Chau is not an isolated phenomenon in China and such infrastructure projects are becoming a symbol of trillions of dollars of public debt that threaten the country's economy.

During the booming Chinese economy, provincial governments rushed to borrow money to carry out "terrible" projects such as building stadiums, parks, highways that were nowhere to be found, all aimed at The purpose is to create as many jobs as possible.

But China's economy is stagnating at its lowest growth rate in nearly three decades, forcing Beijing to tighten its budgetary flow to deal with public debt.

As a result, more and more cities in China are seeking to raise money from hospitals, schools and other organizations to carry out their infrastructure projects. Often, they use complex financial schemes, such as financial leasing or trust arrangements, to bypass the Beijing government's tightening rules on debt.

"Whether it's financial leasing or trust, they're just a tool for local governments to borrow money," said Chen Zhiwu, director of the Institute of Global Asia at the University of Hong Kong. "Today, when central officials can stop a form of borrowing money, local governments will find a new way tomorrow," Mr. Chen added. "That's why China often talks about restricting public debt for many years but it still hasn't solved it."

These loan agreements are on the rise in cities like Nhu Chau, and they will soon become bad debts. Lenders accused three hospitals in Nhu Chau and three investment funds with ties to the city "in debt."

Officials in Nhu Chau have long aggressively spent money on dire projects to sustain local economic growth. As a result, Nhu Chau owns a series of "white elephant" projects, works that create terrible burdens for public debt but do not bring much practical value and bring no economic effect.

The city built a sports complex and a stadium and turned it into an e-commerce center, but most of it is now abandoned. A relocation project started four years ago to bring people in remote rural areas to new housing blocks that are behind schedule because of a lack of capital, locals said.

The potential public debt from localities like Nhu Chau is a big challenge for the Beijing government. If they create a chain reaction that spreads to other areas and affects people's lives, they could disrupt the financial system of the world's second largest economy. These debts also prevent Beijing from increasing lending as a means of stimulating economic growth.

There is no official statistic of how much public debt this is. Beijing thinks its total public debt is about US $ 2.5 trillion, but Vincent Zhu, an analyst at Rhodium Group, says the figure is more than US $ 8 trillion.

"Imagine the economy as a ship like the Titanic. The public debts of the local government are like the containers on board. And this ship already contains too many containers," Zhu said.

Nhu Chau, a municipality in the middle of coal mines in Henan province, borrowed and spent on the activities launched by the central government, in the belief that Beijing will pay most of these loans.

When China focused on hosting the 2008 Beijing Olympics, Nhu Chau built a sports complex, with a stadium with a capacity of 15,466 seats, an indoor basketball court and a convention center. The auditorium has the size of the Chinese People's Great Hall in Beijing.

As technology became a top priority for Chinese leaders, Nhu Chau changed the name of the sports complex to become the Big Data and Electronic Commerce Center as well as to build an E-Commerce Building overlooking. stadium. Currently, indoor basketball courts and auditoriums are being used for event rental.

Building such large projects requires some financial skills, but the Chinese local government has very little power to collect taxes or to borrow. They mainly rely on central government budgets and land sales to real estate developers, but these are often not enough.

In order to borrow more money, many fund management companies have sprouted up in the name of financial instruments of local governments. These companies help raise capital for large infrastructure projects without having to publicize debts.

In 2008, when the central government disbursed a stimulus package worth US $ 586 billion in response to the impact of the global economic crisis, the state bank poured money into these financial instruments.

"You can sit at your desk and the banks will come to your door to ask if you need a loan," said Gao Yinliang, deputy director of the finance division of Nhu Chau Cultural Investment Company, one of the companies. financial instrument of the Zhouzhou government, said.

However, Beijing later changed its position due to concerns about potential public debts. Two years ago, central officials demanded that local governments handle these debts, while forcing the state-owned banking system in Beijing to tighten lending.

With a series of loans to pay, Nhu Chau has turned to mobilizing tens of millions of dollars of high interest rates from private banks to implement projects to build the city hospital. The city soon fell into disrepute.

Since the end of 2018, the private banks have sued three hospitals in Nhu Chau, the Nhu Chau Cultural Investment Fund and two other public investment funds, arguing that they have not paid more than $ 45 million. In August 2019, the Cultural Investment Fund and Traditional Medicine Hospital in Nhu Chau were listed as a government "blacklist", which would limit the ability to borrow or make other types of business agreements. other.

After many hospitals were sued, management began asking for loans from doctors and nurses. In a statement in May, local officials called on the hospital leadership to support a local investment fund through bonds.

"We encourage local hospital managers and staff to buy the said convertible bonds to support the construction of new hospitals," the notice said.

Some hospitals do this by forcing employees to buy bonds, while management sets targets for each department. Doctors and nurses of the Oriental Medicine Hospital, Yuzhou, complained to a local newspaper that they were required to pay $ 14,000-28,000.

At the Nhu Chau Maternal and Child Hospital, doctors and nurses are also required to "invest" between $ 8,500 and $ 14,000, according to state media and social media.

Zhang Yuhang, director of the Yuzhou Oriental Hospital, denied that fundraising was mandatory and that the hospital had misunderstood the government's policy. "This is completely voluntary," he told the local newspaper.

It is still unclear what will happen next to the unfinished "white elephants" projects of Nhu Chau. Dozens of projects are still unfinished, as if many parts of the city were suddenly abandoned.

At the e-commerce center of Nhu Chau City, the construction of four unfinished buildings seemed to have stalled. Among these unfinished buildings was the banner on the red cloth "Four directions holding hands, writing together the Chinese Dream".