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Top auditor pledges to keep watch on debt

Updated: 2013-12-28 08:15
By Zheng Yangpeng ( China Daily)

China's top government auditor pledged on Friday to keep a close eye on the levels of debt and spending to ensure the country's fiscal stability.

Liu Jiayi, head of the National Audit Office, said that his office will track the potential risks of accumulated debt and how they are dissolved, while checking how new debt is used.

The office will also audit officials in "key regions, key departments, key agencies and key posts" at least once during their terms, and conduct checks of government spending on conferences, meetings and office buildings, he added.

Liu's comments echoed those of Finance Minister Lou Jiwei, who said on Thursday that China will enhance the management of its local government debt.

"In the next year, we will strengthen local government debt management. We will build open channels, block secret routes and contain debt risks effectively," Lou said at an annual national fiscal work conference.

Analysts said that Lou was referring to recently disclosed measures to develop the local bond-issuance market to support local governments' financial needs amid the nation's urbanization drive, and to block them from resorting to shadow-banking activities, which are lightly regulated and have much higher borrowing costs.

The Finance Ministry and the People's Bank of China, the central bank, have been studying the feasibility of implementing measures to give local governments more autonomy in bond issuance, in a bid to ease their thirst for funds as they carry out the urbanization projects, the Economic Information Daily reported earlier.

The newspaper said, citing experts close to the matter, that Beijing may allow local governments to issue municipal bonds independently as early as March 2014.

Traditionally, the Finance Ministry was responsible for the issuance and payment of local government bonds. Such rights and obligations will be returned to local governments once the new policy is rolled out. The bonds will be paid with the local governments' tax revenues or profits from public projects on which the money raised via the bonds was spent.

Cao Yuanzheng, chief economist with Bank of China Ltd, said that the country will establish a few new policy financial institutions to address the long-term financing needs of local governments.

The reform plan mapped out at the Third Plenum of the 18th Central Committee of the Communist Party of China said that the nation should consider the possibility of establishing policy financial institutions to address local infrastructure and housing needs.

On Monday, the Chinese Academy of Social Sciences published the country's first balance sheet. The report estimated that China's total government debt was close to 28 trillion yuan ($4.6 trillion) in 2012, representing 53 percent of the nation's GDP that year. Of that amount, local government debt accounted for 20 trillion yuan.

Official audit results have not yet been released, but it is believed they will be disclosed very soon.

The finance minister also said that new legislation for property taxes will be accelerated and a reform of the housing sector will be speeded up at the "appropriate time". China lacks a nationwide property tax system, but the central government has been planning to introduce one to curb the large rise in housing prices seen in the last two years.

Lou also pledged to speed up a program to replace the business tax with a value-added tax to avoid double-taxation situations and support the services industry.

He said China will also push forward a resource tax reform, which means that a resource tax on coal will be levied on the basis of price, instead of volume.

Regarding fiscal policy for the next year, Lou said that one of the major tasks is to optimize the nation's fiscal expenditure structure, and to curb spending on government receptions, car purchases and overseas trips by officials.