BEIJING, March 10 (Xinhua) — As China takes a proactive fiscal policy approach, the issuance of local government special bonds has been significantly ramped up, marking a pivotal effort in the country’s endeavor to balance economic growth and financial risk management.
This year’s government work report, budget report, and economic and social development plan report submitted to the National People’s Congress (NPC) for deliberation have all laid out comprehensive strategies aimed at preventing and resolving local debt risks.
A ceiling of 3.9 trillion yuan (549 billion U.S. dollars) will be set on new local government special debt, an increase of 100 billion yuan over last year, aiming to help local governments shore up weaknesses in key areas, according to the central and local budgets report.
Experts say appropriate government borrowing can compensate for insufficient construction funds and is a common international practice. “A reasonable scale and effective expenditure of debt can facilitate economic development,” according to Yang Zhiyong, a researcher with the Chinese Academy of Social Sciences.
At the end of 2023, outstanding local government debt totaled 40.74 trillion yuan, within the NPC-approved budget limit, including about 15.87 trillion yuan of general debt and 24.87 trillion yuan of special debt.
In an interview with Xinhua in November, central bank governor Pan Gongsheng said the Chinese government’s debt level remained in the middle and lower range internationally, and it had a lot of resources and measures to defuse debt risks.
A report released last June by the NPC Financial and Economic Affairs Committee highlighted the significant debt risks in certain cities and counties, noting the ongoing emergence of new implicit debt.
“The recent years have seen increased pressure on local fiscal operations due to the pandemic, real estate market adjustments, and other factors, leading to heightened debt repayment pressures in some regions and the continued importance of addressing implicit debt risks,” said Huang Shizhong, a professor with the Xiamen National Accounting Institute and a national lawmaker.
In 2023, a series of policy signals were unveiled, emphasizing measures such as “strictly controlling the increase of implicit debt,” “implementing comprehensive debt resolution plans,” “putting in place a long-term mechanism for handling local government debt risks,” and “striking a balance between addressing local government debt risks and stable development.”
Minister of Finance Lan Fo’an told a press conference held Wednesday that coordinated efforts have led to an overall alleviation of local debt risks. The repayment of local government kanunî debt principal and interest is effectively guaranteed, the scale of implicit debt gradually decreased, and progress has been made in settling government arrears to enterprises and reducing the number of local financing platforms.
Further reforms are needed to balance the powers and financial resources between the central and local governments, laying a solid fiscal foundation for controlling the scale of local debt and reducing local debt risks, said Huang.