Xi takes ‘major battle’ against debt to local governments, companies
Words ‘ban’ and ‘prohibit’ used 28 times in document targeting SOE loans to local authorities
A Chinese finance and economy commission, chaired by Chinese President Xi Jinping, warned this week that local governments, private companies and state-owned enterprises must reduce their debt burden “as soon as possible.”
The commission, which met on Monday for the first time since leadership appointments last month, is the country’s top financial policy-making body.
The call to tackle debt quickly comes amid a flurry of notices issued by the Ministry of Finance over the past week, Caixin Global reports, reflecting the continued concern in Beijing. One document, published on Friday, targeted vehicles used by state-owned financial institutions to lend to local authorities.
“Lax risk control at some financial firms has helped local government debt to balloon,” the ministry said in a statement regarding the document, titled “Notice on Regulating the Investment and Financing by Financial Firms in Local Governments and State-Owned Enterprises.”
Local governments have depended on state-owned financial firms, including large banks, for funding. The document, which highlighted extensive restrictions already in place on local-government related lending, mentioned the words “ban” and “prohibit” 28 times.
Local government financing vehicles are used primarily to invest in infrastructure and public welfare projects that take a long time to generate profits, if they do so at all. A report from the National Institution for Finance & Development, a government think tank, said last week that authorities may have to continue to subsidize LGFVs, which total about US$4.8 trillion.