Hainan province downplays debt problems as its capital city asks for help
Province's deputy governor says he is confident of repayments 'at all government levels', even as Haikou says its obligations are 'impossible'
Officials in Hainan province have downplayed concerns over local government debt despite a plea for help by its capital city Haikou, which said it might be unable to meet its repayments.
"I am confident about debt repayment at all government levels in Hainan," Mao Chaofeng, the province's deputy governor, told the Bloomberg news agency on the sidelines of the Boao Forum for Asia on Friday. "I don't think there will be a risk," he said.
In an address to the same forum, Finance Minister Lou Jiwei insisted that local governments would not face bankruptcy as they had "a lot of assets". "[Local governments] have their own methods to handle [debt], I think they can solve the problems before going bankrupt," Lou said.
The ministry was responsible for monitoring debt risks and had stepped up efforts to manage them, Lou said, but the central government had no plans to bail out local governments.
The comments were in stark contrast to a letter drafted by Haikou's political advisers warning of its debt problems.
"It's impossible to pay the debts with our own financial resources," the advisers wrote, calling for help from the provincial government.
Haikou's problem was so severe that it was included two years in a row on a finance ministry list of cities at risk of being unable to meet their debt repayments, the letter said.
Hainan is striving to become a tourist destination, and Haikou has invested heavily in facilities and infrastructure using funds raised from local government debt. The letter says that as the city's economic development is still at an early stage it cannot generate the returns to meet the debts, but the peak repayment period has already arrived.
Citing a 2014 audit, Caixin reported that 14.9 billion yuan (HK$18.8 billion) in Hainan government debt would mature this year. Haikou accounted for nearly half of it.
Haikou projected that its fiscal income this year would be about 11 billion yuan, while proceeds from land sales would be about 10 billion yuan. The city government cautioned in its budget that the sales target was subject to challenges in the property market and overall downward pressure in the economy.
Amid growing concerns over debt problems at the local government level, the Ministry of Finance announced a trillion-yuan debt-for-bond swap programme this month, allowing provincial authorities to convert expiring debt into bonds that carry lower yields and longer-term maturities.
The Haikou city letter asked the provincial government to expand Haikou's quota under the debt-for-bonds programme to ease its financial burden. Lou said local government debt grew last year but at a slower pace than the ministry had expected.
The debts were issued under about 100,000 entities including local government financing vehicles and even some government departments, he said. "But the risk is still under control."
The government would consider expanding quotas in the debt-for-bonds programme if necessary, Lou said.
