China News Service, Beijing, March 25 (Reporter Zhao Jianhua) China is paying increasing attention to resolving local debt. The State Council recently held a video conference on preventing and resolving local debt risks. Premier Li Qiang pointed out that through joint efforts from all parties, the work of preventing and resolving local debt risks has achieved phased results and maintained the bottom line of preventing systemic risks. The work of resolving debt is not only a tough battle, but also a protracted battle; we must promote the resolution of debt risks in high-quality development.
Including reducing the number and debt scale of financing platforms and promoting the reform and transformation of financing platforms, the meeting also mentioned a number of targeted debt reduction measures.
Luo Zhiheng, chief economist of Guangdong Securities, analyzed that "controlling growth and reducing deposits" is the top priority in resolving local debt. The early debt reduction measures enabled the debt problem to overcome short-term liquidity risks and made some implicit debts explicit. The achievements of debt reduction deserve full recognition and laid the foundation for further economic and social development. Next, there are two focuses to control the increase. One is to build a debt management mechanism in the institutional mechanism that is compatible with high-quality development, and the other is to seize the main body that breeds hidden debt-the financing platform.
Local debt cannot be resolved in a day; it takes time for the spring breeze to melt the ice. During the National Two Sessions this year, Finance Minister Lan Fo'an introduced that in 2023, the Ministry of Finance will arrange a certain scale of refinancing government bonds within the local government debt limit space to support local governments, especially high-risk areas, in resolving hidden debts and cleaning up government arrears. accounts, etc., alleviating the pressure of centralized repayment of maturing debts and reducing the burden of interest expenses. The repayment of principal and interest on statutory debts of local governments is effectively guaranteed, and the scale of implicit debts is gradually declining; positive progress has been made in the settlement of government arrears to corporate accounts, and the number of local financing platforms has been reduced. Overall, China's local government debt risks are currently generally controllable.
Data released by the Ministry of Finance show that as of the end of December 2023, the national local government debt balance was 40,737.3 billion yuan (RMB, the same below), which was controlled within the limit approved by the National People's Congress. As of the end of December 2023, the average remaining life of local government bonds is 9.1 years, and the average interest rate is 3.27%.
Debt settlement has long been on the desks of local governments. In the 2024 government work reports (hereinafter referred to as the reports) published by various provinces, autonomous regions and municipalities, "preventing and resolving local debts" appears frequently.
Among them, the report of the Inner Mongolia Autonomous Region stated that in 2023, it will regard preventing and resolving risks in the economic field as an important political task, insist on selling iron to repay debts, formulate and implement relevant debt reduction plans, and spend 20.6 billion yuan to support grassroots debt reduction, exceeding the annual debt reduction task. According to the report of Guizhou Province, this year it will coordinate various financial resources and assets and steadily promote the resolution of existing debts. Resolutely curb illegal new hidden debts and gradually promote debt and financial management into a virtuous cycle.
In addition, the Yunnan Provincial Report proposed that this year it will strengthen the dynamic monitoring, early warning and disposal of full-scale local debt risks, and resolve risks with "one policy for one place, one policy for one enterprise, and one policy for one debt". The Tianjin Municipal Report stated that this year, we will make full use of national support policies and do a good job in resolving debt in a steady and orderly manner.
While plugging loopholes such as hidden debt, we must also develop the economy and increase fiscal revenue. This is the fundamental solution.
Wang Dehua, director of the Fiscal Audit Research Office of the Institute of Financial and Economic Strategy of the Chinese Academy of Social Sciences, who has long been concerned about government debt issues, said that resolving debt risks requires a well-coordinated relationship with economic development. One indicator of government debt risk is the ratio of debt to GDP. In layman's terms, economic development (GDP) is the denominator and debt is the numerator. The numerator cannot grow excessively, but it is more important to promote the growth of the denominator.
As far as specific debt projects are concerned, the debt itself is not a risk. The key is the efficiency and structure of debt expenditure. Luo Zhiheng said that it is extremely important to optimize the regional structure, investment structure, term structure and main body structure of debt, and invest in areas and regions with high-quality development. As the scale of debt expands, due to faster economic growth and higher quality, the level of debt risk has not expand. Higher quality economic development should be achieved by optimizing the debt structure and the debt problem should be solved during development. (over)