BEIJING: China is expected to completely defuse hidden local government debt risks in around four to five years, and the debt stress is unlikely to trigger systematic financial risks that would derail China’s economic recovery, a source close to the matter told China Daily.
The anonymous source made the remarks when rebutting the recent downgrading by rating agency Moody’s to its outlook on China’s government credit ratings from “stable” to “negative”.
The source said that China’s on-balance-sheet government debt-to-GDP ratio is only about 50 percent, far less than many other major economies, and the hidden local government debt is much less than many estimate. Besides, half of the local government hidden debt will be properly addressed by the end of the year, with strengthened regulations forestalling any new debt from emerging.
“The country is capable of properly handling existing debt with the road map it has employed,” the source said, adding that some regions such as Guangdong province and Shanghai have already finished defusing the risks from implicit local government debt.
The country has adopted a package of measures to solve the hidden debt risk, which include extending debt maturities, selling assets to repay debts, and replacing short-term and costly local government financial vehicle debts with local government refinancing bonds that have longer-term maturities and lower costs.
“Local governments raising funds through so-called local government financial vehicles will become history, leaving the platforms involved to follow market-oriented rules to survive or not,” the source said.
Following Moody’s move, rival agencies S&P Global Ratings and Fitch Ratings both confirmed with China Daily that they have made no changes to their ratings on China. S&P Global Ratings affirmed A+long-term ratings on China in June with a stable outlook, while Fitch Ratings affirmed China at A+ with a stable outlook in August. Beijing-based rating agency China Chengxin International Credit Rating also affirmed on Tuesday its sovereign credit rating of AA+g, with a stable outlook on China. –The Daily Mail-China Daily news exchange item
