Fri, Oct 03, 2014 - Page 15 News List

Beijing announces plans to cap government debt

Bloomberg

China announced plans to cap the amount of debt local governments can take on and ban them from additional borrowing through financing vehicles as authorities step up efforts to control risks to the financial system.

All borrowing by provinces and cities will need to be within a quota set by the State Council, China’s Cabinet, and approved by the National People’s Congress, according to a statement posted to the central government’s Web site yesterday.

Debt levels will be included as a “hard criteria” to evaluate officials, the statement said.

Local governments will be granted “limited discretion” over borrowing, including issuing bonds for public-service projects.

They should ensure financing for existing projects, it said.

Local-government debt swelled 67 percent from the end of 2010 to 17.9 trillion yuan (US$2.9 trillion) as of June 30 last year, according to the National Audit Office.

Almost 40 percent of local governments’ liabilities came from off-budget funding through their more than 7,000 financing vehicles, the auditor said in December last year.

At the end of August, the National People’s Congress passed amendments to the nation’s budget law that lay the legal framework for allowing local governments to raise funds by directly selling bonds.

China will only allow local governments to borrow for capital expenditures on non-profit projects and “moderately” for repaying existing debt, according to the statement.

They will not be allowed to raise money for general spending purposes, it said.

While local governments can have “limited discretion” on borrowing, their financing vehicles will be banned from adding additional government-related debt, the statement said.

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