(Yicai) Oct. 29 -- Local authorities in China are seeking to secure the yet to be announced new quotas that will enable them to replace hidden debt with more manageable official debt, in what the finance minister has described as “the strongest debt relief measures in recent years.”

Henan province will continue to report its financial situation to the finance ministry and coordinate with it to secure a larger hidden debt swap quota, more transfer payments, and other policy benefits, Liu Xiangyu, its finance deputy, said at a recent press conference.

A finance official from another province told Yicai that their local administration is urgently compiling a report with the most up-to-date figures in preparation for the forthcoming new quotas.

Finance Minister Lan Fo'an announced on Oct. 12 that China is planning a one-off increase in the local government debt ceiling to support the replacement of hidden debt through the issuance of more government bonds, with the aim of alleviating the financial burden on localities and mitigating the risks associated with implicit debt.

Increasing the debt ceiling requires approval from the Standing Committee of the National People's Congress. It is expected to be put before the 12th session of the Standing Committee of the 14th NPC, which will be held between Nov. 4 and 8.

Local authorities have increasingly relied on local government financing vehicles to fund public services amid shrinking revenues, even though this has created a hidden debt problem.

Most of the new quotas are likely to be directed to provincial-level regions with high hidden debt burdens, said Wen Laicheng, a professor at Central University of Finance and Economics. Local governments with no implicit debts will probably get nothing, he added.

The debt swap is a national-level unified initiative, with the quota allocation likely proportionate to the scale of each locality’s hidden debts, according to Hu Hengsong, vice general manager at Caida Securities.

In the past year, local governments have issued about CNY1.7 trillion (USD238.1 billion) of special refinancing bonds to swap out existing hidden debt, thereby helping to defuse risks and pay arrears to businesses. According to official statistics, Guizhou and Yunnan provinces and the municipality of Tianjin issued the most among local governments in the period.

Editors: Liao Shumin, Futura Costaglione