China Is Optimizing National Debt Structure to Ease Burden on Local Gov’ts, Experts Say(Yicai) March 7 -- China’s central government is working to improve the national debt structure by expanding its share, as it can borrow at lower cost, thereby alleviating the heavier debt burden on local authorities, according to fiscal and tax experts.
The central government has relatively lighter debt burden and more room to borrow and at lower cost than local governments, the experts told Yicai after Premier Li Qiang delivered the annual government work report on March 5 that set the country’s fiscal and economic targets for this year.
Total new government debt is projected at CNY11.86 trillion (USD1.62 trillion) for this year, with CNY6.66 trillion (USD918.9 billion), or 56 percent, issued by the central government and CNY5.2 trillion, or 44 percent, by localities, according to the work report.
This compares with about CNY8.96 trillion in new debt last year, with the proportions issued by the central and local governments being 48 percent and 52 percent, respectively.
The central government’s fiscal deficit accounts for nearly 86 percent of this year’s total, the highest in recent years, said Luo Zhiheng, chief economist at Yuekai Securities. This reflects the increase in central borrowing, which is higher due to increased sales of special treasury bonds, which optimize the debt structure, he added.
According to Yuan Haixia, executive director of China Chengxin International Credit Rating’s research institute, increasing central government borrowing can boost market confidence, stimulate demand, strengthen regulatory oversight, ease the financial pressure on local authorities, improve the debt structure, and lower overall borrowing costs.
The central government's substantially higher borrowing this year is directed more toward investment and supporting national consumption policies, said Zhang Jun, chief economist at China Galaxy Securities. Meanwhile, local fiscal measures are relatively restrained, with new borrowing mainly used to address hidden debts and steady the real estate sector, he noted.
Editor: Futura Costaglione
