Local government debt risk is controllable, with local debt ratio estimated at 86 percent this year, according to a report presented to China's top legislature Tuesday.
The report, delivered by the Budgetary Affairs Commission of the National People's Congress (NPC) Standing Committee, said the reading is below the alert level of 100 percent. Local government debt is expected to be held at 16 trillion yuan (2.47 trillion U.S. dollars) by year end, in accordance with a debt limit imposed by the top legislature in August, according to the report.
The limit consists of two parts, 15.4 trillion yuan of debt owned by local governments by the end of 2014, and 600 billion yuan set as the maximum amount of debt local governments are allowed to run up in 2015. Although local debt has been tempered, putting the brakes on the increasing debt and repayment of debts are challenges that still remain, according to the report.
It said local debt balance is substantial and developing fast. The 2014 debt balance surged about 41 percent from the end of the first half of 2013, and was valued at 1.2 times the final 2014 public budget, according to the report. It added that since selling land-use rights and new loans were two major ways to cover local debts, local governments' capability to repay debt had suffered in recent years due to weakening real estate markets and tightened financial supervision.
Meanwhile, local governments, especially those in the less developed central and western parts of the nation, are still contemplating more loans to support economic development, it said. Local government debt has expanded substantially since 2008 when the central government issued a package of measures including increasing public investment and easing monetary policies to tackle the challenges from the global financial crisis.
Noticing the potential risks, the government subsequently took a series of measures, including a bond-for-debt swap program that allows local governments to convert their debt to low interest bonds. The swap quota for 2015 was set at 3.2 trillion yuan.
About 99 percent of the quota had been fulfilled by Dec. 11, said Zhang Shaochun, vice minister of finance, when delivering a report to the ongoing bi-monthly session of the top legislature, which opened Monday. Legislative efforts are also under way.
According to the amended Budget Law, which took effect this year, and a State Council regulation, a cap should be placed on the local government debt balance, and the size of local government debt should be submitted by the State Council to the NPC for approval.
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