Over­all govt debt risks ‘un­der con­trol’

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO, WANG YU and HU YUANYUAN

China will speed up the is­suance of lo­cal gov­ern­ment debt in the sec­ond half of the year, but the over­all risks are un­der con­trol, gov­ern­ment of­fi­cials and in­dus­try ex­perts said.

“The is­suance scale in the first six months is lower than the same pe­riod of last year, and the cost has been ris­ing due to the in­creas­ingly tight­ened liq­uid­ity,” said Wang Ke­bing, deputy head of the bud­get depart­ment at the Min­istry of Fi­nance.

Yang Xiao­jing, an an­a­lyst spe­cial­iz­ing in lo­cal gov­ern­ment debt with China Chengxin In­ter­na­tional, es­ti­mated a to­tal of 455 bil­lion yuan ($67.02 bil­lion) newly added lo­cal gov­ern­ment bonds were is­sued in the first half of the year, which was only around 28 per­cent of the gov­ern­ment’s tar­get for 2017 (1.63 tril­lion yuan), in­di­cat­ing that more bonds will be is­sued in the fol­low­ing six months.

Tang Lin­min, a re­searcher with the Academy of So­cial Sci­ences, held a sim­i­lar view­point.

“The scale and speed of lo­cal gov­ern­ment debt is­suance are both ex­pected to rise in the sec­ond half of the year,” Tang was cited by the Eco­nomic In­for­ma­tion Daily as say­ing.

The cen­tral gov­ern­ment has ac­cel­er­ated debt-for-bond swaps for lo­cal gov­ern­ments to ease their fi­nan­cial bur­den. The tar­get for such swaps is no less than 3 tril­lion yuan for 2017, but only 1.2 tril­lion yuan were is­sued in the first six months of this year.

De­spite the ex­panded scale of lo­cal gov­ern­ment debt in the sec­ond half year, the over­all risks are un­der con­trol, thanks to im­proved mech­a­nisms in quota and bud­get man­age­ment, risk dis­posal and reg­u­lar su­per­vi­sion.

To fend off po­ten­tial risks, the Chi­nese gov­ern­ment has es­tab­lished a lo­cal gov­ern­ment debt mon­i­tor­ing sys­tem, and has strength­ened ac­count­abil­ity over ir­reg­u­lar bor­row­ing. “We have seen most pro­vin­cial gov­ern­ments set up lead­ing teams to man­age and reg­u­late lo­cal gov­ern­ment debt,” added Wang Ke­bing.

China’s newly re­vised Bud­get Law clearly stip­u­lates that lo­cal gov­ern­ment debt should be pub­licly is­sued through a na­tional quota-based mech­a­nism, and var­i­ous lo­cal fi­nanc­ing plat­forms backed by the lo­cal author­ity should not is­sue lo­cal gov­ern­ment debt.

Ac­cord­ing to the lat­est re­port by the Na­tional Au­dit Of­fice on 16 prov­inces’ cities and coun­ties, the av­er­age gov­ern­ment debt ra­tio in these re­gions reached 70 per­cent, which was much lower than the gov­ern­ment debt ra­tio of other ma­jor economies.

The av­er­age gov­ern­ment debt ra­tio is the debt bal­ance to be paid with pub­lic funds by gov­ern­ment, di­vided by the com­pre­hen­sive fi­nan­cial re­sources of the same level of gov­ern­ment.

JP Mor­gan China econ­o­mist Zhu Haibin said China has paid at­ten­tion to im­prov­ing the trans­parency of lo­cal gov­ern­ment debt man­age­ment and strength­ened su­per­vi­sion.

“Since 2015, fol­low­ing the stan­dards to reg­u­late fi­nanc­ing chan­nels for lo­cal gov­ern­ments, lo­cal gov­ern­ment bonds have be­come the ma­jor chan­nel, and the man­age­ment of bor­row­ing, lend­ing and re­pay­ment has been in­creas­ingly stan­dard­ized,” said Wei Qiang, di­rec­tor-gen­eral of the Gen­eral Of­fice at the Na­tional Au­dit Of­fice.

Zhuang Jian, se­nior econ­o­mist at the Asian De­vel­op­ment Bank, said the over­all risk of China’s lo­cal gov­ern­ment debt is low, but it is im­por­tant to pay at­ten­tion to some lo­cal gov­ern­ments with weak fi­nan­cial strength.

Data from the Min­istry of Fi­nance showed that the quota of lo­cal gov­ern­ment debt in 2017 was around 18.8 tril­lion yuan, while that in 2016 was 17.2 tril­lion yuan and 16 tril­lion yuan in 2015. Last year, China’s lo­cal gov­ern­ment debt bal­ance was 15.3 tril­lion yuan, de­creas­ing 4.3 per­cent yearon-year.

We have seen most pro­vin­cial gov­ern­ments set up lead­ing teams to man­age and reg­u­late lo­cal gov­ern­ment debt.”

Wang Ke­bing, deputy head of the bud­get depart­ment at the Min­istry of Fi­nance

Con­tact the writ­ers at caix­iao@chi­nadaily.com.cn

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