(Yicai Global) July 18 -- Chinese authorities have stepped up efforts to hold local governments to account for legal and regulatory violations regarding the accumulation of debts with a number of officials removed from their posts.

The finance ministry has reprimanded some 12 provincial governments including Guangxi, Yunnan, Anhui and Shandong for taking on debt and providing guarantees, according to an official statement, as part of efforts to rein in the growth of such implicit borrowing.

Some 10 officials who were in charge of and played an important role in the use of local government financing vehicles such illegalities and irregularities have been removed from their posts and will be held responsible for local government debt indefinitely.

Several fiscal and tax experts told Yicai Global that they expect the ministry to further intensify regulation of local government debts in the second half of the year and hold them accountable for each case uncovered and investigated.

The finance ministry highlighted illegalities and irregularities in how local authorities have taken on debt and provided guarantees in the following places: Laibin and Hezhou in Guangxi Zhuang Autonomous Region in southwestern China, Baoshan in Yunnan province, Yiliang County of Kunming, Lufeng County of Chuxiong Prefecture, Jingdong County of Pu'er, all in Yunnan province, Chizhou Economic Development Zone in Anhui province, and Yinzhou district of Ningbo in Zhejiang province.

Various Borrowing Methods

Local governments in the above places used various means to take on debt illegally and irregularly including borrowing money in the name of governmental purchasing services, under build-transfer project models, and through local government financing vehicles, while local financial institutions such as banks, trust companies and financial leasing firms provided financing support in violation of laws and regulations, the statement said.

Under Chinese budget law, with the exception of local government bond issuance, local departments are barred from borrowing money in any way. Unless otherwise stipulated by laws, local governments and their affiliated departments are also banned from providing guarantees in any way for any unit or individual's debt.

Severe punishment

These illegalities and irregularities have been corrected, the statement said, adding that relevant letters of guarantee and documents issued by the governments have been invalidated, and the relevant funds have been returned to financial institutions.

Officials involved have been punished to varying degrees such as being held accountable publicly, receiving a demerit, an internal party warning or an administrative demotion and even being removed from posts.

Editor: William Clegg