BEIJING: China is set to pave the way for further moves to resolve local debt problems, experts said on Wednesday, adding that more efforts should be made to alleviate debt burdens of local governments and optimize the structure of fiscal spending and debt.
Their comments came after the Central Financial Work Conference, a two-day meeting that ended on Tuesday, said efforts should be made to establish a long-term mechanism to guard against and defuse local debt risks, set up a government debt management system that is compatible with China’s pursuit of high-quality development, and optimize central and local government debt structures.
Yang Haiping, a researcher at the Institute of Securities and Futures — part of the Central University of Finance and Economics — said the meeting assumes a higher-level perspective to coordinate development and security, which will help resolve local debt problems in the future.
Looking ahead, he said the country will likely take more steps to optimize bond issuances, utilization and repayment, and ensure the sustainability of debt through measures such as determining and controlling debt limits. And it will take more measures to ensure the implementation of debt control mechanisms and debt risk prevention mechanisms through corresponding accountability mechanisms. In July, a meeting of the Political Bureau of the Communist Party of China Central Committee urged efforts to effectively guard against and defuse local debt risks, and formulate and implement a package of debt-clearance plans.
Yang said the country will gradually replace hidden liabilities of local governments with officially declared debts, and the issuance of “special refinancing bonds” will help ease debt burdens.
As of the end of October, more than 20 provincial-level regions issued over 1 trillion yuan ($137 billion) worth of such bonds during the month to swap their implicit debt, according to news reports.
Special refinancing bonds are government bonds whose proceeds are typically used to repay hidden government debt — usually the liabilities of local government financing vehicles, or LGFVs — that are implicitly guaranteed by local governments. By doing so, implicit debt is replaced with official government debt. –The Daily Mail-China Daily news exchange item
