The head of Ministry of Finance says that the Chinese government’s debt levels are still well beneath a hazardous threshold, and that it is fully capable of preventing any outbreaks of systemic financial risk.
Speaking at a press conference for the 13th National People’s Congress Xiao Jie (肖捷) said that recent changes in the government’s accounting methods had led to a misapprehension of China’s actual debt levels.
“Chinese government debt is demarcated in accordance with the provisions of the Chinese budget law, and includes central government national debt, local government debt, as well as outstanding government debt that was identified and confirmed as of the end of 2014…because from 1 January 2015 China implemented a new budget law.
“As of the end of 2017 the Chinese government’s debt balance was 29.95 trillion yuan, of which the central government national debt balance was 13.48 billion yuan, and the local government debt balance was 16.47 trillion yuan.
“The Chinese government’s debt ratio, as calculated by dividing the debt balance by national GDP, is 36.2%, and this figure marks a decline compared to the reading of 36.7% in 2016.
“The Chinese government’s debt ratio is beneath the 60% alert line that it in general use internationally, as well as beneath the debt levels of other major economies and some emerging economies.
“We expect that over the next several years, the Chinese government’s debt risk index will remain similar to 2017, and there will be no marked changes compared to the figures just reported.”
According to Xiao China has introduced new administrative mechanisms over the past several years that leave it well positioned to deal with any debt issues.
“The Chinese government is heavily focused on government debt management, especially following the promulgation of the new budget law, and has successively unveiled a series of policies and measures that cover various links including threshold management, budget management, risk warnings, emergency disposal and daily supervision.
“We can say that we have already completed the initial formation of a closed circuit management system for local government debt.
Xiao said that China would continued to focus on containing the local government debt which comprises the majority of the Chinese total government’s debt.
“According to the provisions of the new budget law, the issuance of local government bonds is the sole lawful means by which local governments can raise debt.
“Last year we investigated, processed and made public 10 cases of illegal or illicit debt raising, and punished nearly one hundred responsible individuals.
“The next step will be to further standardise and strengthen local government debt administration.
“By ‘opening the front door,’ we give consideration to rational increases in the debt scale -for example this year we plan to arrange for 1.35 trillion yuan in local government special bonds, for an increase of 550 billion yuan compared to last year.
“At the same time we will rationally confirm local government debt limits by region, and steadily drive special bond administrative reforms.
“With regard to ‘shutting the back door,’ we will strictly implement the budget law and guarantee law, and strictly combat disorderly raising of funds.”
Xiao said that the Chinese government would uphold the principle that “whoever raised the debt is responsible for the debt,” as well as strengthen investigations into accountability for debt, including the implementation of a system of lifetime accountability for government officials.