Experts downplay local govt money risk
BEIJING — Concerns about China’s local government debt risks have been over blown.
Academics and analysts pointed out that the world’s second-largest economy still enjoys dynamic growth and has strengthened its management of local government debt.
This is mainly invested in productive assets, according to Wang Dehua, researcher at the National Academy of Economic Strategy under the Chinese Academy of Social Sciences.
When compared with major economies such as Germany and Japan, China’s local debt balance to GDP ratio was lower in 2015, Wang said, citing data from the Organization for Economic Cooperation and Development or OECD.
“The data has fully demonstrated that the allegation of high risk in China’s government debt is wholly groundless,” Wang said.
China’s local government debt soared during an investment and construction binge following the global financial crisis in 2008. Well aware of the risks, authorities have rolled out a string of measures to reduce the problem.
According to data from the Ministry of Finance or MOF, local government debt totaled 15.32 trillion yuan ($2.3 tril- lion) last year, while central government debt reached 12.01 trillion yuan. The total government debt accounted for about 36.7 percent of the country’s GDP, well below the warning level by international standards.
While the debt total of 15.32 trillion yuan was lower than the cap on 17.2 trillion yuan set by the central budget for 2016, it was still a 41 percent increase from 2013, the National Audit Office, or NAO, disclosed.
Data released by the MOF showed that China swapped 8.1 trillion yuan of debt under the program last year. In 2016, this saved local governments 400 billion yuan in interest by initial estimates.
“While exposure of hidden debt could reduce risks, the fact that local governments do not have monetary sovereignty makes it harder for them to contain risks,” said Zhao Quanhou, director of the financial research center at the Chinese Academy of Fiscal Sciences under the MOF.
China has put a ceiling on the amount of local government debt through a quota system.
Authorities are also ramping up efforts to correct irregularities in local debt issues such as financing through fake public-private partnerships and illegal borrowing through financing vehicles.
New items may be gradually added into the “negative list” of local government financing, said Qiao Baoyun, director of the Chinese government debt research center under the Central University of Finance and Economics.
According to Qiao, authorities have focused on bringing greater transparency to local government bonds by protecting the legitimate interests of investors.
Latest checks by the NAO have found debts that local governments have committed to repay with public funds in selected provinces, cities and counties have climbed 87 percent compared to the level in mid-2013, but that the overall risk can be controlled.
“The challenges to local government debt management in China are like growing pains,” Qiao said. “China has clear reform goals. It is believed that China can continue to identify, understand and solve problems in practice.”
cap on debt set by the central budget for 2016
A worker paints a road mark along a section of the Beijing-Xinjiang expressway in Hami, the Xinjiang Uygur autonomous region.