china must rein in rapid growth in local govt debt
Last Updated : GMT 06:49:16
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Arab Today, arab today
Last Updated : GMT 06:49:16
Arab Today, arab today

China must rein in rapid growth in local govt debt

Arab Today, arab today

Arab Today, arab today China must rein in rapid growth in local govt debt

motorists driving on an interchange in Chongqing, southwest China
Beijing - Arab Today

China must rein in rapid build-up in local government debt and should implement reforms at the local level to raise transparency and allow market forces play a bigger role, an influential government economist said on Tuesday.
“We can’t take a laissez-faire attitude toward local governments’ excessive growth in debt,” Li Yang, chairman of the National Institution for Finance and Development, told a forum on regional development where researchers and media were in attendance. “We must reform.”
Global investors are increasingly worried about mounting debt in China, with continued efforts by authorities to stimulate the economy threatening to amplify the problem.
Moody’s Investors Service downgraded China’s credit ratings in late May for the first time in nearly 30 years, saying it expects the financial strength of the world’s second-largest economy will erode in coming years as growth slows and debt continues to rise.
Li said local government debt between 17.5 trillion yuan to 21.3 trillion yuan ($2.6 trillion to $3.1 trillion) by the end of 2016, which accounted for about 23 percent to 28 percent of the country’s gross domestic product (GDP).
Local governments have come up with “new tricks” to raise funds in the past two years after their debt-issuance was somewhat restricted with the passing of a new budget law in 2015, Li said.
The new channels included setting up the so-called government-led funds to lure private money of questionable source for state investment. Meanwhile, some local governments have stretched their fiscal budget, and even used “maintaining social stability” as a political cause to ask for central monetary support, Li said.
He called for reforms to limit the hand of government at the local level — by giving market forces and private investments a more decisive role — and added that local governments should be required to increase fiscal transparency and stick to their fiscal budgets.
While criticizing Moody’s for its “unreasonable downgrade” on China, Li said local governments could get some pointers from credit ratings.
“From another perspective, some people say an institution that always finds fault with you can force you to see your own problems,” he said.
Beijing has rolled out tighter controls on new local government debt issuance amid an intensifying crackdown on its bubbly financial sector this year to help ward off debt risks.
China’s structural reforms will slow the pace of its debt build-up but will not be enough to arrest it, and another credit rating cut for the country is possible down the road unless it gets its ballooning credit in check, officials at Moody’s said.

Source: Arab News

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