China’s government should stay true to its plans of eliminating implicit local government borrowing guarantees, according to economists, ahead of an expected surge in bond issuance.
Beijing should continue to be strict on local governments when it comes to implicit guarantees on loans owed by local government financing vehicles (LGFVs), chief economist at China’s State Information Center Zhu Baoliang told Caixin.
Risky local government debt has become a principal target of the central government’s crackdown on nationwide financial risk, a move which has stifled fixed-asset investment. Many officials have grown cautious about their borrowing habits and are keen to pay off existing debt before taking on further loans for necessary infrastructure spending, according to Zhao Quanhou of the Chinese Academy of Fiscal Sciences.
Local governments are now granted monthly quotas for bond issuance, which many authorities have kept well within over the first half of the year. According to the Ministry of Finance, local governments issued Rmb 1.41 trillion ($208 billion) in bonds during the last six months – a quarter less than the first half of 2017. Only 24% of this was new debt, with around two-thirds of the bonds swapped from debt.
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