Local govt debt risks controllable in 2017

Prevention of systemic risk remains crucial, official says

The risks of China’s government debts are under control in general, an official from the Ministry of Finance (MOF) told a press conference on Friday.

According to Liu Wei, a deputy director of the MOF, local government debt in China totaled 15.86 trillion yuan ($2.35 trillion) by the end of June, below the ceiling of 18.82 trillion yuan set by the National People’s Congress, the country’s top legislature.

The local government debt ratio stood at 80.5 percent in 2016, a safe level by interna- tional standards, Liu said.

According to Liu, China’s total government debt reached 27.33 trillion yuan as of the end of 2016, with a debt ratio of about 37 percent, lower than the warning line of 60 percent set by EU or the debt levels of major emerging markets and market economies in the world.

“We have achieved some good results in controlling local government debt risks, and we must defend the bottom line of preventing systemic risks,” Liu said at the press conference.

There have been concerns in recent years about the security of China’s local government debt, which burgeoned after 2008.

“Local governments’ pursuit of rapid economic expansion has caused the government debt scale to swell,” Lu Qianjin, a professor of international finance at Shanghai-based Fudan University, told the Global Times on Friday.

The government has taken steps in recent months to control debt levels. For example, the central government set debt limits for local governments.

Local governments must classify their debt under their budget accounts, and they may not run up debt that exceeds their limits.

“Local governments should be wary of debt rollovers. To prevent that from happening, local governments must invest in projects with sound repayment prospects,” Lu noted.

He said that projects in industries with overcapacity should not be on the investment lists of local governments.

The central government also stressed at the recently concluded National Finance Work Conference the impor- tance of controlling any rise in local government debt and using a lifelong accountability system for government officials on this issue.

Liu from MOF said that beyond strengthening local government debt management, the government has also pursued other positive fiscal policies such as cutting taxes.

Data revealed by Liu showed that China’s fiscal position was healthy in the first half of this year. Public budget revenues surged by 9.8 percent on a yearly basis to 9.43 trillion yuan.