Lo­cal debt rules to be bol­stered Lever­age re­mains un­der con­trol, but pos­si­ble risks ‘scru­ti­nized’

China Daily (Hong Kong) - - TOP NEWS - By WANG YANFEI wangyan­fei@ chi­nadaily.com.cn

China will strengthen ef­forts in reg­u­lat­ing lo­cal govern­ment debts, giv­ing more promi­nence to con­trols over hid­den debt risks, the vice-min­is­ter of fi­nance said on Fri­day.

“While the over­all govern­ment debt re­mains well be­low the level that would be risky, risks in­volved in il­le­gal fund­ing meth­ods will be scru­ti­nized in or­der to pre­vent fi­nan­cial haz­ards,” said Vice-Min­is­ter of Fi­nance Liu Wei.

The min­istry will is­sue guide­lines to en­hance reg­u­la­tion of project-spe­cific bonds, re­fer­ring to new chan­nels giv­ing lo­cal gov­ern­ments greater bor­row­ing ca­pac­ity.

The lat­est new fi­nanc­ing method in­tro­duced by the min­istry is land rev­enue bonds, and the re­pay­ment source is in­come re­lated to land sales.

His com­ments came af­ter the cen­tral govern­ment in­tro­duced a slew of mea­sures tar­get­ing off-bal­ancesheet debts dur­ing the first half of the year.

Zhang Bin, a se­nior re­searcher at the Chi­nese Academy of So­cial Sciences, said it is hard to pre­dict when the reg­u­la­tory mea­sures will take ef­fect. Cur­rently, the to­tal amount of off­sheet debt is hard to cal­cu­late, he said.

“The good thing is that doc­u­ments re­leased by the min­istry are prob­lem-solv­ing ori­ented. The govern­ment has made it clear what kinds of fund­ing chan­nels should be strictly pro­hib­ited,” Zhang said.

“The govern­ment will add more de­tails as new risk points are found,” he said. “Now the key is to make sure that the mea­sures are put into place at lo­cal lev­els.”

En­ter­prises and banks have been ac­tive in the past sev­eral years is­su­ing credit to lo­cal gov­ern­ments to in­vest in in­fra­struc­ture con­struc­tion projects. Guar­an­tees from lo­cal gov­ern­ments, of­ten in the form of let­ters or other doc­u­ments, helped en­sure re­pay­ment.

Risks that ac­cu­mu­lated in off-sheet debts would threaten the na­tion’s fi­nan­cial sta­bil­ity if not prop­erly re­solved, given that they of­ten are linked to an­other source of fi­nan­cial risk — funds from shadow bank­ing, ac­cord­ing to Zeng Gang, a se­nior re­searcher at the Chi­nese Academy of So­cial Sciences.

Zhang Lianqi, a fi­nan­cial ex­pert con­sulted by the min­istry, said while reg­u­la­tions are im­proved at the cen­tral govern­ment level, lo­cal gov­ern­ments should im­prove trans­parency by re­turn­ing debts to the bud­get sheet us­ing a spe­cific timetable.

While fend­ing off fi­nan­cial risks, the govern­ment will im­ple­ment a proac­tive fis­cal pol­icy to sup­port sus­tain­able eco­nomic growth in the sec­ond half, said Wang Ke­bing, deputy head of the bud­get depart­ment at the Min­istry of Fi­nance.

He said the govern­ment will con­tinue to re­duce taxes and costs for en­ter­prises. A to­tal of 1 tril­lion yuan ($148.3 bil­lion) of tax and cost bur­dens is ex­pected to be re­duced by year’s end.

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