March 7, 2017 / 1:39 AM / 7 months ago

China vows to strictly control local government debt quotas

Chinese Finance Minister Xiao Jie attends a news conference during the ongoing National People's Congress (NPC), China's parliament, in Beijing China March 7, 2017. REUTERS/Jason Lee

BEIJING (Reuters) - China will strictly control local government debt quotas and step up checks on illegal debt guarantees, finance minister Xiao Jie said on Tuesday, as the country’s top officials stepped up assurances that they will keep financial risks under control.

With the economy now on more solid footing, containing the risks from years of debt-fueled stimulus and heavy spending has been a major focus at the annual meeting of China’s parliament which began on Sunday.

Government debt risks are generally under control, Xiao told a news conference on the sidelines of the session.

“I believe (measures taken) will be able to reasonably control outstanding local government debt and contain debt risks,” said Xiao.

China will continue a debt-swap program for local governments to help contain debt risks, Xiao said.

The government has tightened controls in recent years on new local government debt to help ward off risks following a borrowing binge since the global financial crisis.

Chinese Finance Minister Xiao Jie (2nd L) attends a news conference during the ongoing National People's Congress (NPC), China's parliament, in Beijing China March 7, 2017. REUTERS/Jason Lee

China has cut its growth target to a more modest 6.5 percent this year to give policymakers more room to push through painful reforms to address the rapid build-up in debt.

Growth last year came bang in the middle of the government’s 6.5-7 percent target range, but much of the momentum came from record bank lending and higher government spending.

China capped the size of outstanding local government debt at 18.8 trillion yuan ($2.72 trillion) in 2017, up from 17.2 trillion in 2016, according to the annual budget report released on Sunday, excluding bonds issued under a debt swap scheme.

The government will continue to improve the financing environment and push forward with the standardization of public-private partnership (PPP) projects, Xiao said.

A total of 1,351 PPP projects worth 2.2 trillion yuan have been signed by the end of 2016, with the timeframe for implementing such projects becoming shorter, he added.

Moody’s Investors Service said in February that misaligned incentives between China’s central and regional and local governments are an obstacle to economic reform and rebalancing, and thus a credit negative.

Authorities are also struggling to clamp down on illegal borrowing by local governments, according to a report in financial magazine Caixin last month.

Reporting by Elias Glenn, Writing by Kevin Yao; Editing by Kim Coghill

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