China’s finance minister sees ‘relatively large’ room to increase govt debt

China’s government has “relatively large room” to incur debt, China’s finance minister Xiao Jie said on Tuesday, sending a message that Beijing is ready to increase government borrowing to bolster growth if needed.

Xiao, a former taxation chief who was promoted to his current post late last year, said at his first press conference that he was able to “put the risk of local debt into a cage” by opening a “front door” for local government to borrow, namely issuing bonds within a quota approved by Beijing, while closing “back doors” by banning illicit or illegal local government borrowings.

Xiao took sole charge at the press conference, taking all 11 questions himself, while assistant finance minister Dai Bohua sat on the stage without making any public comments throughout the session.

The policies listed by Xiao on local government debt were first initiated by his outspoken predecessor, Lou Jiwei, who worked hard to defuse the bomb of local government debt.

Xiao’s comments came as the immediate risk of defaults in local government debt, once regarded as a potential source of a financial crisis in the country, have been reined in after Beijing has so far swapped over 8 trillion yuan (US$1.1 trillion) of local government debt with low-interest, long-term bonds.

Xiao said Chinese central and local government debt totalled 27.3 trillion yuan by the end of 2016, or 36.7 per cent of gross domestic product, and China is expected to maintain a similar rate throughout this year.