Laborers work at the construction site of a low-cost housing project in Ordos City in China’s Inner Mongolia Region. (Photo : Xinhua)
China’s top legislature on Saturday has imposed a cap of 16 trillion yuan ($2.5 trillion) for local government debts for 2015 in a bid to rein in the country’s rising local deficit.
The decision was adopted at the close of the National People's Congress (NPC) Standing Committee bi-monthly session, according to Xinhua News Agency.
The 16-trillion-yuan debt consists of two parts, with 15.4 trillion yuan of debt balance owned by local governments as of the end of 2014, and 0.6 trillion yuan for new debts local governments are allowed to run up in 2015.
According to the Budget Law, which took effect this year, and a State Council regulation, China should cap local government debt balance and that the size of local government debt should be submitted by the State Council to the NPC for approval.
China's local debts began to rise in 2008 when the central government implemented its 4 trillion yuan ($640 billion) stimulus program in response to the global financial crisis, which was further exacerbated by the issuance of 1,224 municipal bonds totaling 1.4 trillion yuan ($218 billion) in 2014, the Want China Times said in its report on Tuesday.
Wang Dehua, a researcher at the Chinese Academy of Social Sciences (CASS) in Beijing, also attributed the rapid expansion of local debt to inaccurate statistics made in the past, the recent proactive fiscal policy, and major infrastructure projects in recent years.
"The move will rein local government debt with law," said Ma Haitao, a professor at Beijing's Central University of Finance and Economics, suggesting that local debt budget will be submitted to the NPC and the disclosure system of government debt will be improved.
Chinese Finance Minister Lou Jiwei said that the outstanding local debts will hit an acceptable rate of 86 percent of government incomes, although the debt rations in several parts of the country will be much higher.
One troubling aspect is that the terms of the existing municipal bonds average only three years, which underscores the issue of utilizing short-term funds for long-term purposes, said Yang Zhiyong, a researcher at the financial and economic strategies department of CASS.
The Ministry of Finance has approved the issuance of 3.2 trillion yuan ($502 billion) in municipal bonds to substitute for existing debts in other forms and is expected to continue doing so with the hopes that the remaining local debt will be converted entirely into municipal bonds in five to seven years, the Want China Times reported.
