Better risk control eyed on local government debts
Print Edition
China will better manage local government debts and improve the risk control mechanism, the Ministry of Finance said yesterday amid rising risks from expanding debt as the economy slows.
China will cap outstanding debts of local governments and strengthen management of new bond quotas, according to the ministry’s online statement.
Currently, local governments issue bonds according to a quota set by the central authorities.
Governments will need approval from the top legislature to alter the cap, the statement said.
China will also conduct comprehensive risk assessment, establish a mechanism to defuse risks and improve the supervision and accountability system, according to the statement.
In 2015, local governments issued nearly 600 billion yuan (US$91.3 billion) in new bonds and converted another 3.2 trillion yuan in outstanding debts to low-interest bonds under a bond-for-debt swap program.
The central authorities have introduced the swap program and put a cap on new debts to defuse risks, and are trying to increase the incomes of local governments.
Economists predict the governments will step up bond issuance and debt swaps as economic hardships linger and outstanding debts worth around 11 trillion yuan are expected to be converted in 2016 and 2017, according to the official agenda.
The bond issuance and swaps are likely to range from 5 trillion to 6 trillion yuan in total this year, Everbright Securities economist Xu Gao said.
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