Tue, Dec 26, 2017 - Page 10 News List

Detroit-like bankruptcy might benefit China: official

‘ILLUSION’:A bankruptcy would convince investors that Beijing is determined to dispel false beliefs of an implicit guarantee for regional authorities, a central bank official said

Bloomberg

China should allow local governments to go bankrupt to help rein in regional authorities’ excessive borrowing, a Chinese central bank official said.

A case like the bankruptcy of the city of Detroit in the US would convince investors that the central government is really determined to dispel beliefs of an implicit guarantee for regional authorities, People’s Bank of China (PBOC) Research Bureau head Xu Zhong (徐忠) yesterday wrote in an article in the China Business News.

Just a couple of days ago, the Chinese Ministry of Finance pledged to break the “illusion” that Beijing would bail out local governments’ hidden debt.

Their calls for limiting local borrowings are in line with the Chinese central government’s financial policy for next year.

Chinese President Xi Jinping (習近平) earlier this month said that a priority for next year is to “effectively” control leverage and prevent major risks.

PBOC Governor Zhou Xiaochuan (周小川) in October urged caution against local government financing vehicles and other means being used “to disguise debts,” and argued for fiscal reforms.

Concerns among investors about a lack of support for local funding units have led to a slump in the issuance of local governments’ debts.

Local government financing vehicles have sold 1.7 trillion yuan (US$259 billion) worth of bonds in onshore and offshore markets this year, a 23 percent drop from last year, according to data compiled by Bloomberg.

Fitch Ratings in September said that the first bond defaults by Chinese local government financing vehicles are becoming more likely.

Chinese Vice Minister of Finance Zhu Guangyao (朱光耀) on Saturday said that addressing “hidden debts” of local governments and state-owned companies’ debts are key to prevention of systemic financial risks, the China Securities Journal reported.

China can achieve a goal of doubling the size of its economy by 2020 even if annual expansion slows to 6.3 percent, a senior Chinese Communist Party official said, signaling a greater willingness to tackle debt and pollution at the expense of growth.

In its blueprint for the 2016-2020 period, China set a minimum annual growth target of 6.5 percent to achieve the goal of doubling GDP from 2010 levels.

However, over the weekend, Yang Weimin, an official from the party committee overseeing economic policy, said annualized growth of 6.3 percent from next year to 2020 would do.

Based on current economic performance, the 2020 target would not be a “huge barrier,” the official Xinhua News Agency cited Yang, deputy head of the Office of the Central Leading Group on Financial and Economic Affairs, as saying.

China is seen growing 6.8 percent this year and 6.5 percent next year, according to economists’ estimates compiled by Bloomberg.

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