In this file photo dated July 23, 2018, a clerk counts yuan banknotes at a branch of Bank of China in Nantong city, East China's Jiangsu province. (PHOTO / IC)
China is expected to completely defuse hidden local government debt risks in around four to five years, and about half of the debts are to pose no risk by the end of 2023, a source close to the matter told China Daily.
The anonymous source made the remarks when rebutting the recent cut by rating agency Moody's to its outlook on China's government credit ratings from stable to negative.
China has completed the work to categorize the debts raised by the so-called local government financing vehicles, or LGFVs, and has identified debts that need to be addressed, which, according to a complicated calculation models, mainly are debts raised to support local economic development and now have repaying problems, the source said.
The source also revealed that local governments raising funds through local government financing vehicles will become history after the country completely defuses the risk from the implicit local government debts. Such fund-raising platforms will then follow market-oriented rules, and strengthened regulations will forestall any new implicit debt from emerging
The implicit debts identified do not include debts of LGFVs that have healthy cash flows, because their debts will not default and do not require special attention, the source said, adding some regions like Guangdong province and Shanghai have already finished defusing the risk.
In some regions including Tianjin, situations are more complicated, more time may be needed to defuse the risk, the sources said.
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The source also revealed that local governments raising funds through LGFVs will become history after the country completely defuses the risk from the implicit local government debts. Such fund-raising platforms will then follow market-oriented rules, and strengthened regulations will forestall any new implicit debt from emerging.
Even taking consideration of the hidden local government debts, China's government debts-to-GDP ratio is much lower than that of many other countries, like Japan and the United States, the source said, not revealing the detailed value of the outstanding debts.
The source only revealed that those implicit debts that need to be addressed are much less than the official 61-trillion-yuan ($8.52 trillion) outstanding government debt.
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A package of risk-solving measures is being employed to solve the local government hidden debt risk, which include issuing replacing short-term and costly LGFV debts with local government refinancing bonds that have longer-term maturities and lower costs, extending debt maturities, and selling assets to repay debts, according to the source.
