Reform efforts will ease financial pressures, support project funding

A worker welds a steel frame for a bridge under construction in Linzhou, Henan province. The National Development and Reform Commission is expected to work out an annual target list to implement reform initiatives mapped out at a key leadership meeting earlier this month. Bi Xingshi / For China Daily

Although the world has been talking about China's local government debt piling up, how bad is it really?

It is "under control", said a senior economic policy official on Wednesday in Beijing.

Yang Weimin, an official with the Leading Group on Finance and Economics of the Communist Party of China Central Committee, said the amount of local debt is risky but remains manageable.

The debt raised by local governments to finance their own development projects has grown quickly, he said.

But if measures pledged in the reform roadmap adopted by the Third Plenum of the 18th CPC Central Committee are followed, local debt won't be a major problem, Yang said.

In fact, the reform efforts will ease local government debt burdens, Yang said.

The details are still being worked out by officials, he said, but will be unveiled nationwide in due course. The National Development and Reform Commission will come up with an annual target list to carry out the reform initiatives, Yang said.

The National Audit Office last reported local government debt at the end of 2010, giving the figure as 10.72 trillion yuan ($1.77 trillion).

Economists' estimates of current local debt range from 20 trillion yuan to 30 trillion yuan, with the latter equivalent to 60 percent of the GDP.

Last week, China's leadership unveiled a reform agenda for the next decade, pledging to let the market play a "decisive" role in the economy and outlining sweeping changes to unleash fresh drivers of growth.

Guo Weimin, an official with the State Council Information Office, said minister-level officials will be invited to give news briefings on the reform agenda in coming days.

The Third Plenum agreed to expand vehicles for financing urban construction, and Yang said this indicates that local governments will be granted the right to raise debt directly.

"To that end, the Budget Law, which prohibits such debt-raising, should be revised," he said.

Yang dismissed any concerns that the gradual opening of local government debt-raising will lead to uncontrollable risks, saying that many measures pledged in the reform agenda are designed to ensure an improved local tax system and that more involvement of private capital in infrastructure construction will ease the burden on governments.

Davide Cucino, president of the European Chamber of Commerce in China, called the decision a wide-ranging and ambitious plan but said the hardest steps lie ahead.

He noted that the full benefits of further opening up can only be realized if access is granted to all players and not just domestic companies.