China: Overall risk of local government debt controllable: national audit office – 28 Jun 2017

• The Chinese government has always attached great importance to the management of government debt, and has established a standardized borrowing and financing system for local governments, according to a senior official with the National Audit Office (NAO).
• Mechanisms such as quota management, budget management, risk disposal and regular supervision are being improved, and the momentum of government debt growth has been effectively reined in, the official pointed out.
• The current audit which focused on the 2016 situation reveals that, since 2015, following the standards set in an effort to regulating channels for local government borrowing, local government bonds have become the major channel of local borrowings, and the management of borrowing, lending and repayment has been increasingly standardized, with its structure continuously being optimized.
• Although there was an 87% growth in debt balance that the local governments have committed to repay with public funds, and some counties in the western region with comparatively smaller debt balances in previous years saw their debt balances more than doubled, the average government debt ratio (the debt balance to be repaid with public funds by government divided by the comprehensive financial resources of the same government) in these regions reached 70%.
• Compared with the government debt ratio of other major economies, this is still relatively low. Meanwhile, a large part of the newly increased debt took shape as the local government financing vehicles continued to implement the loan contracts signed in previous years or renewed contracts in accordance with the framework agreements since the implementation of the new Budget Law.

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