China’s local governments seen to be quietly defusing ‘hidden debt’ bomb
- Local governments’ finances shows a difference of 668 billion yuan (US$103 billion) between refinancing bonds sold in the first half of the year and the amount repaid
- Local authorities issued 1.9 trillion yuan (US$293 billion) of refinancing bonds in the first half of the year, while only repaying 1.2 trillion yuan in official bonds
China could be making inroads in a long-standing battle to deal with local governments’ so-called hidden-debt as the economy’s rebound gives officials room to focus on tackling financial risks.
An analysis of local governments’ finances shows a difference of 668 billion yuan (US$103 billion) between the amount of refinancing bonds sold in the first half of the year to roll over maturing debt and the amount of bonds repaid.
That implies cities and provinces may have used some of the proceeds to repay off-balance sheet debt, according to Robin Xing, chief China economist at Morgan Stanley in Hong Kong.
It “should make a positive contribution to the economy,” he said, helping to increase the transparency of government financing, reduce government funding costs and lower financial risks in the system.
Local authorities issued 1.9 trillion yuan (US$293 billion) of refinancing bonds in the six-month period, while only repaying 1.2 trillion yuan in official bonds, data from the Ministry of Finance last month showed.