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17:27, 01-Mar-2018
New tack on reforms: China continues to crack down on unregulated local gov't debt
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The Chinese government continues to crack down on unregulated local government debt. Over the past few months, the central government has launched a variety of policies, all aiming to control the financial risks of hidden local debt.
Data from the Ministry of Finance show that local governments across China issued bonds worth 4.36 trillion yuan (687 billion US dollars) in 2017, and the high volume indicates that risks might also be high.
During the National Financial Work Conference last year, officials said the expansion of local government debt has become a major risk to China's economic development. The lack of transparency of many of these debts as well as the lack of regulation of public-private partnerships (PPP) could all create problems.
VCG Photo
VCG Photo
Shao Yu, chief economist of Orient Securities said that local government debt is the sector that most lacks transparency in China's real economy, and the volume is quite large. But if the leverage could be well-controlled, the risks would be reduced.
“I think local governments are making things more transparent, making invisible debts accountable and clarifying who is responsible for them. That will be good for the management structure in local government, and will also help to adjust the relationship between local governments and the central government,” said Shao.
In December last year, the National Audit Office released a work report on government efforts to curb unregulated issuance of local government debt. The report says local officials responsible for unregulated debt have been dismissed in Chongqing, Shandong and Henan.
VCG Photo
VCG Photo
As of the end of 2016, total local government debt reached 27 trillion yuan (4.3 trillion US dollars), over 30 percent of the country's GDP. The government's next step is to strengthen auditing and management of this debt.
“Since January, we've seen the Ministry of Finance beginning to limit the issuance of local government debt,” said Qian Shizheng, professor from School of Management at Fudan University. “We believe that over the past three years, local government debt has been increasingly well-controlled by the central government. Risks are gradually being curbed.”
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