China’s Ministry of Finance (MOFCOM) is preparing new set of accounting standards in a bid to get to the bottom of debt borne by the government, and local authorities in particular.
MOFCOM has just announced the issuance of the “Government Accounting Standards No. X — Debt (Draft for Solicitation of Opinions)” (政府会计准则第X号——负债（征求意见稿）), with the goal of “accelerating the establishment of government accounting standards, standardising relevant accounting processes in relation to government debt, and raising the quality of accounting information on government.”
The finance ministry also hopes to standardise the scope and categories for the debt of government accounting entities, as well as methods of confirmation, calculation and disclosure.
According to a senior official from MOFCOM the “government debt” as described in the new standards refers to first-tier government debt, including government bonds issued by financial departments in the name of the government and sums borrowed from overseas governments and international economic organisations, as well as entrusted loans obtained from the higher tier of government.
The official said that “for some time now, China’s government debt, and in particular its local government debt, has seen continuous growth, with some local governments using financing platforms to raise debt and obtain debt financing beyond the purview of budgets.
“The potential risk this encompasses has become a focal point for the whole of society.
“Over the past few years MOFCOM has undertaken a large volume of work to continuously improve relevant legal and regulatory systems, establish debt quota administrative mechanisms, strengthen government debt budget managements, undertake risk assessment and warnings, issue local government bonds to replace accumulated debt, research and develop emergency disposal plans and restrain illegal and non-compliant guarantee and financing conduct.
“[It] has obtained positive results with respect to the prevention and dissolution of financial risk.”
MOFCOM said that the drafting of the new government accounting standards was based on two primary considerations, the first being to raise the quality of information on government debt, and the satisfaction of the practical needs of the users of accounting information.
The second is improving the government accounting standards system, and standardising internal requirements for the accounts processing of government debt.