Ex­perts down­play lo­cal govt money risk

China Daily (Hong Kong) - - BUSINESS -

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

CAI ZENGLE / FOR CHINA DAILY

A worker paints a road mark along a sec­tion of the Bei­jing-Xin­jiang ex­press­way in Hami, the Xin­jiang Uygur au­ton­o­mous re­gion.

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