China deficit debate heats up with wave of debt set to come

China is considering a mechanism to cap local government debt, a researcher affiliated with the Ministry of Finance was cited as saying, as policymakers debate deficit levels for a year in which a wave of debt will come due.

Local governments’ approved debt levels would be set taking into account the a local economy’s size, the degree of urbanisation, existing debt and “management systems”, the China Daily reported on Thursday, citing Zhao Quanhou, head of financial research with the Research Institute of Fiscal Science, which is affiliated to the Ministry of Finance.

Zhao’s comments follow remarks by Finance Minister Xie Xuren last week advocating strict controls on new debt issuance.

“The mechanism is still at the planning stage and has not been made final yet,” Zhao said.

A large portion of the debt issued by local governments as part of China’s stimulus to stave off the effects of the 2008 global financial crisis comes due this year and next, although estimates of the total amount of outstanding debt vary.

Guangzhou, the capital of Guangdong province, said its local government debt came to 241.4 billion yuan (HK$296.5 billion) at the end of June, the English-language Global Times reported on Thursday. This is the first time that a local government in China has publicly revealed details of its debt, the newspaper said.

The National Audit Office says 42 per cent of all local government debt will have matured by the end of this year, and another 11 per cent comes due next year.