In rare move, Chinese tycoon sues local governments for late payment as unpaid debts mount in China

One of China's richest men is suing six local governments for late payments on infrastructure contracts, the Financial Times reported in what it said was a rare legal action that underscored the risks of unpaid debts cascading through China's economy.

Local government borrowing has risen steeply in recent years, with much new credit used to service existing debt, raising fears that local defaults could spark a full-blown financial crisis.

Yan Jiehe, founder of China Pacific Construction Group, said on Monday that his company's legal actions were the first such suits launched against local governments.

"We will appeal all the way to the Supreme Court if necessary," Mr Yan told the Financial Times in a telephone interview. "We will surely win this case. The records and evidence are clear."

CPCG is China's largest private sector infrastructure company in an industry traditionally dominated by state-owned enterprises, said FT. Last year it was ranked 166th on the Forbes 500 list of the world's largest companies, with US$60 billion in annual revenues. Mr Yan was listed as China's seventh-richest person by last year's Hurun report, with a fortune estimated at US$14.2 billion.

The lawsuits involve six municipal and county governments across the country, said FT. Last week Ma Jiantang, director of China's statistical bureau, highlighted local government debt as one of the greatest risks to the economy, which last year grew at its slowest pace in 24 years.

According to China's National Audit Office, local government debt had reached RMB18 trillion (S$3.87 trillion) by June last year from RMB 10.7 trillion at the end of 2010. So-called "build and transfer" infrastructure projects, in which CPCG specializes, accounted for about 8 per cent - or RMB1.5 trillion - of total local government debt last year, the FT added.