Local govt debt under review to prevent risks

By Wei Tian (China Daily) Updated: 2013-01-22 07:45

Changjiang Securities said such measures would result in a bottleneck for local government financing in the first half of 2013, and some projects may have to seek financing in the debt market.

Jin Hainian, vice-president of a research institute at Dagong, said local authorities have shown an interest on having their credit rated by Dagong.

Although the client list cannot be made public, there are around 50 local governments, including those at provincial, city and county level, currently in touch with Dagong, Jin told China Daily on Monday.

The agency evaluates the credit status of local governments based on a number of factors and not just focusing on fiscal revenue and expenditure.

The system also has global clients, mostly foreign local governments who are interested in attracting Chinese investors, Jin said.

Zhao Quanhou, head of financial research with the Fiscal Science Research Center, which is affiliated to the Finance Ministry, said credit rating for local authorities can be another tier of control.

In a previous interview, Zhao said the Ministry of Finance is currently working on a system to gather information about local government debt and may set a cap on the ability of local governments to raise debt.

"Internal controls by the Finance Ministry and the external credit rating can help tackle the issue," Zhao said.

However, he suggested, a major problem for the "external supervision" would be the difficulty for a credit rating agency to acquire detailed information of a local government.

In fact, Dagong wasn't the only credit agency looking at local government.

Zhang Zhijun, general manager of China Lianhe Credit Rating, said his company had been in touch with Shanghai and Zhejiang province on their credit rating when the Ministry of Finance launched a pilot program to allow independent debt issuance in these areas.

"But it didn't work out because the debt, in case of default, was still paid by the Finance Ministry and there was little demand for local authorities for credit rating," Zhang said. "The local governments are like subsidiaries of the central government, who is the parent company. The debt of a subsidiary will always be covered by the parent company."

However, he said he believed credit rating can still play a role in regulating local debt, as they can decide the bond yield revealing the credit risks of the issuers.

weitian@chinadaily.com.cn

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