China to strengthen risk control on local govt debts

BEIJING -- China will better manage local government debts and improve the risk control mechanism, the Ministry of Finance (MOF) said on Monday in the face of rising risks from expanding debt amid an economic downturn.

China will put a proper cap on outstanding debts of local governments and strengthen management of new bond quotas, according to an online statement from the MOF.

Currently, local governments issue bonds according to a quota set by the central authorities.

Governments will need approval from the top legislature to alter the cap, the statement said.

China will also conduct comprehensive risk assessment, establish a mechanism to defuse risks and improve the supervision and accountability system, according to the statement.

In 2015, Chinese local governments issued nearly 600 billion yuan ($91.43 billion) in new bonds and converted another 3.2 trillion yuan in outstanding debts to low-interest bonds under a bond-for-debt swap program.

The central authorities have introduced the swap program and put a cap on new debts to defuse risks, and are trying to increase the incomes of local governments.

Economists predict the governments will step up bond issuance and debt swaps as economic hardships linger and outstanding debts worth around 11 trillion yuan are expected to be converted in 2016 and 2017, according to the official agenda.

The bond issuance and swaps are likely to range from five to six trillion yuan in total this year, Everbright Securities economist Xu Gao said.