According to a civil ruling on a contract dispute disclosed by the Beijing High Court, CITIC Trust has sued the Ruzhou Municipal Government in Henan Province over a contract dispute, demanding payment of part of the receivables and liquidated damages totaling approximately RMB150 million (RMB, same below). This is another case in which a trust company sued a local government for breach of trust and breach of contract, following the one in which Zhongtai Trust sued the Huichuan District Government of Zunyi City, Guizhou Province.
According to the description of the ruling, on July 27, 2017, Ruzhou City Industrial Cluster Development Investment Company Limited (hereinafter referred to as Ruzhou Development Company) as the assignor, CITIC Trust as the assignee, and Ruzhou City Administrative Committee (authorized by Ruzhou Municipal Government) as the debtor signed the Debt Splitting and Assignment Agreement.
According to the Agreement, the Ruzhou Municipal Government agreed that Ruzhou Development Company would assign RMB935 million of accounts receivable claims to CITIC Trust as a separate claim. Thereafter, CITIC Trust paid the subscription price from the offering of the senior and intermediate income rights to Ruzhou Development Company in accordance with the agreement, but Ruzhou Municipal Government and the guarantor failed to repay the amount in full and on time as agreed.
Therefore, CITIC Trust sued Ruzhou Municipal Government to the Beijing Third Intermediate Court, demanding Ruzhou Municipal Government and Ruzhou Development Company to pay part of the receivables, part of the default amount totaling 152 million yuan, and to bear the litigation costs such as attorney’s fees and preservation fees.
The Ruzhou Municipal Government objected to the jurisdiction of the court, which was rejected by the Beijing Third Intermediate Court and the Beijing High Court.
In recent years, the mainland economy has been in the doldrums, local government land revenue and fiscal revenue have been declining, and the risk of debt has become increasingly serious. At the end of last year (2020), Xue Targan, deputy director of the mainland Ministry of Finance’s Government Debt Research and Evaluation Center, said that the balance of local government debt will reach RMB 26 trillion by the end of 2020, with the debt ratio approaching the alert range, and local governments are under increasing pressure to repay their debts, with increasing risks.
Liu Zhonghua, a former finance minister of the mainland, said that the debt ratio of some provinces has greatly exceeded the alert line.
In September last year, the Shanghai Financial Court heard a case in which Zhongtai Trust sued the Huichuan District Government of Zunyi City, Guizhou Province, Huichuan District Urban Construction Investment and Operation Co. and Zunyi Economic and Technological Development Zone Investment and Construction Co.
The case involves a product that began on July 5, 2016, with a total size of 350 million yuan, a three-year term, and a rollover in August 2019. The remaining principal amount to be repaid is currently approximately RMB 231 million.
According to the judgment, the Shanghai Financial Court found that the Huichuan District Government was in default and should perform the repayment of the corresponding amount to Zhongtai Trust. This judgment became effective on January 22, 2021. Currently, Zhongtai Trust has applied to the court for enforcement.
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