In an effort to tame excessive financial leverage and bolster risk controls, China is setting up new system for supervising local government finances and debt issuance, according to a new policy document issued Wednesday. A cross-department supervisory mechanism will monitor local governments’ spending and debt to prevent systemic financial risks, according to the document. The policy statement was jointly issued by six government agencies including the Ministry of Finance, the Development and Reform Commission, the Central Bank and securities and banking regulators. According to Caixin, Chinese authorities have taken a series of steps to manage surging debt as local governments borrowed heavily to fund economic development and infrastructure projects. By the end of 2016, outstanding local government debt totaled 15.32 trillion yuan ($2.22 trillion), or more than 80% of the local governments’ total revenue, according to the MOF.
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