Business / Economy

Two sessions eyed for local govt debt solution

(Xinhua) Updated: 2014-02-26 13:16

BEIJING - The mounting debt incurred by China's local governments over the years will likely take center stage at this year's parliamentary sessions, set to begin on March 5.

"The debt issue has actually been around for years, and with the attention it gets, we are under a lot of pressure," a fiscal official from east China's Jiangsu province said in a recent interview on condition of anonymity.

Most local government officials shy away from talking about the issue in public, but they expect a move from the central government to break the current unsustainable borrowing through the country's shadow banking system.

Two sessions eyed for local govt debt solution

Two sessions eyed for local govt debt solution

The meetings of China's top legislature beginning March 5 and political advisory body on March 3 could offer change.

The issue has already gained traction over the past year, following a nationwide audit of government debt and the central government's repeated pledges to keep the risk from turning into a full-blown crisis.

China's debt problem, though different from the troubles that threatened to send the US government off a fiscal cliff or that roiled Greece into turmoil, has earned attention for its risk to the world's second-largest economy.

After various estimates put forward by agencies within and outside of China over the years, the Chinese government issued its own auditing results of local government debt at the end of last year.

This was followed by the results published by individual provinces and municipalities. These audits together confirm an emerging consensus that China's debt is generally manageable but could get out of hand if its structural problems and the lack of oversight are not addressed in a timely manner.

A first look at the size of China's local government debt by the end of June 2013 -- 10.88 billion yuan ($1.79 billion) in direct liabilities and 6.99 billion in contingent liabilities -- places China below the 60 percent debt-to-GDP ratio, an internationally accepted threshold to trigger a risk alert.

But staying below the threshold doesn't mean authorities can be complacent, as a thorough analysis of who lends and who borrows, and at what cost, shows risks are going unchecked.

"It's not the size, but the lack of supervision that has got regulators' nerves," said Hu Yijian, a professor specializing in fiscal policy at Shanghai University of Finance and Economics.

Local govt solvency tested on debts due

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