China’s largest province in terms of area has declared the suspension of all government-sponsored investment projects as Beijing cracks down on local government debt.
A statement released by the Xinjiang Development and Reform Commission last week said that local authorities would “comb through” all government sponsored projects that commenced after January 2017 in order to determine whether they had enough funding for completion.
Those projects with insufficient funding for completion will be abandoned instead of receive further money from the government, while any new applications for government projects will be rejected if they lack evidence of adequate funding.
“We would prefer to have a slower economic growth rate than amass debt…we must ensure that there is no increase in government debt,” said the Commission.
Xinjiang is China’s largest province-level administrative unit, covering a sixth the country’s territory.
The Xinjiang government’s announcement arrives amidst a crackdown by Beijing on local government debt as part of its broader economic deleveraging campaign, and may well spell the end of the use of a credit-fuelled growth model in the region.
The Chinese central government has said that it is determined to curb covert or illicit growth in local government leverage, as well as set a 21 trillion yuan ceiling on local government debt for 2018.
Last week China’s Ministry of Finance also banned any state-owned enterprises from providing any form of financing to local governments outside of bond purchases.
“Local government debt is an important part of financial de-risking,” said Wen Laichen, professor of fiscal science at the Central University of Finance and Economics to the South China Morning Post. “A series of punishments from the finance ministry have generated some results.”
Wen said that further measures from the Chinese central government to curb local government debt could soon follow.
“For instance, the central bank could limit bank lending [to local government projects] through macro prudential policy framework,” said Wen.
