Guide­line is set on lo­cal govt debt risk

China Daily (USA) - - TOP NEWS - By XIN ZHIM­ING xinzhim­ing@chi­nadaily.com.cn

China re­leased a con­tin­gency guide­line on Mon­day for han­dling lo­cal gov­ern­ment debt prob­lems, a move that an­a­lysts said is part of the coun­try’s fis­cal re­form to strengthen bud­get man­age­ment and pre­vent its gov­ern­ment debts from bal­loon­ing.

The guide­line spec­i­fies for the first time four types of “debt risk events” and cor­re­spond­ing emer­gency re­sponses. Lo­cal govern­ments will take full re­spon­si­bil­ity for pay­ing debt through such emer­gency mea­sures as scal­ing down in­fra­struc­ture in­vest­ment, re­duc­ing gov­ern­ment ex­pen­di­tures, mak­ing use of land sales and sell­ing as­sets.

It also sent a warn­ing to lo­cal govern­ments that they would not be bailed out in the event of any lo­cal debt cri­sis.

In ad­di­tion, of­fi­cials and bank man­agers re­spon­si­ble for any cri­sis would be held ac­count­able.

The im­ple­men­ta­tion of the guide­line will help im­prove the ca­pa­bil­i­ties of lo­cal govern­ments in the mon­i­tor­ing and early warn­ing of risks and en­sure that no re­gional fi­nan­cial cri­sis would erupt, ac­cord­ing to a state­ment by the Min­istry of Fi­nance on Mon­day.

“The guide­line is part of the coun­try’s con­sis­tent bud­getary bal­ance strat­egy in re­cent years,” said Dong Yup­ing, an econ­o­mist of the In­sti­tute of Fi­nance and Bank­ing at the Chi­nese Acad­emy of So­cial Sciences. “It does not mean there is any im­mi­nent dan­ger of debt cri­sis erup­tion.”

China’s lo­cal gov­ern­ment debt to­taled 16 tril­lion yuan ($2.34 tril­lion) at the end of 2015. Even if the cen­tral gov­ern­ment debt is taken into ac­count, the ra­tio of China’s gov­ern­ment debt to GDP re­mains low, an­a­lysts said.

China be­gan try­ing to put lo­cal gov­ern­ment debt un­der con­trol soon af­ter the im­ple­men­ta­tion of the coun­try’s mas­sive 4 tril­lion yuan stim­u­lus plan in late 2008, which led to a strong rise in lo­cal gov­ern­ment bor­row­ing.

In 2009, China is­sued a doc­u­ment to strictly con­trol lo­cal fi­nanc­ing plat­forms, such as city in­vest­ment com­pa­nies, that were used by lo­cal govern­ments to cir­cum­vent cen­tral reg­u­la­tion and bor­row. To meet the fi­nanc­ing de­mand of the lo­cal govern­ments, China re­vised the Bud­get Law in 2014, af­ter which lo­cal gov­ern­ment could di­rectly is­sue bonds.

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