BEIJING – China’s local governments will only be able to finance themselves through bond issuances in the fixed market, Chinese Finance Minister Xiao Jie announced on Wednesday.
The measure was announced at a press conference and is part of an initiative to strengthen control over local government debt to reduce systemic debt risks.
This will be the only legal way in which local governments can finance themselves, and funding from other sources, including bank loans will be considered illegal and liable to punishment, Xiao warned at a press conference in Beijing on the sidelines of the annual plenary session of the National People’s Congress.
He added that local governments in 2018 can issue bonds up to 1.35 trillion yuan ($213.4 billion), which is an increase of 550 billion yuan, as compared to the previous year.
The volume of China’s debt at the end of 2017 stood at 29.95 trillion yuan, which is 36.2 percent of the GDP, as compared to the 36.6 percent recorded in 2016.
This ratio is relatively low as compared to the debt-to-GDP levels of other developed economies and emerging countries, said Xiao, adding that they are not expecting any significant changes in this indicator in the coming years.
Xiao stressed that the Chinese government is paying close attention to the management of government debt and is determined to reduce irregularities in the ways of financing, such as loans granted by the “shadow banking” system or companies that are not governed by financial regulations.
Xiao also announced a tax cut for individuals and companies insisting on China’s goal to reduce its fiscal deficit to 2.6 percent of GDP, as compared to the 3 percent target it had set the previous year.