China to meet ‘reasonable’ local government financing needs, says government, as authorities try to pay off huge debts
Local governments owed 16 trillion yuan last year, but finance ministry says risks from debts are under control
While curbing illegal fund-raising and guarantees by local governments, the “front door” will be opened to help them meet “reasonable” funding requirements to support local economic growth, China’s finance ministry said on Friday.
Local governments will also be allowed to refinance more of their expensive maturing debt, the ministry said in a statement on its website.
It also said the central government would set a reasonable size for new bond issuance next year, without giving details.
The ministry kicked off a debt swap programme last year to help local governments refinance expensive maturing debt to low-interest rate bonds to help control a local debt pile that reached 16 trillion yuan (HK$18.3 trillion) in 2015.
Local governments will continue to issue new bonds to swap their maturing debt, the ministry said.
Local governments swapped 3.2 trillion in maturing debt last year and Chinese officials expect debt swaps to reach about 5 trillion yuan this year.
The debt swaps cut local governments’ interest payments by 600 billion yuan in 2015 and 2016, the ministry said.
Risks from China’s local government debt are under control and their debt ratio will not show big changes by the end of 2016 compared with the previous year, the statement said.
Local government’s debt ratio stood at 89.2 per cent at the end of 2015, below the international warning line, it said.
The economy and local government fiscal revenues will maintain a medium to high growth rate, providing fundamental support for curbing local debt risks, the ministry said.
China’s parliament has approved the government’s proposal for a 17.2 trillion yuan local outstanding debt limit for 2016.