Business / Economy

Local govts get more say in choice of financing tools

By Wei Tian in Shanghai (China Daily) Updated: 2014-03-06 07:18

Local governments will be given more rights and obligations in issuing bonds in a bid to ease their debt pressure, Premier Li Keqiang announced Wednesday.

In a government work report he delivered to the nation's top legislators, Li said bonds will become a major financing mechanism for local governments this year, adding that they will have to "issue bonds and repay debt on their own".

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China's local governments are generally prohibited from raising money on their own - only six provincial-level governments, including Shanghai and Guangdong, were allowed pilot bond issuances, and they were still paid for by the Ministry of Finance.

But the scale of local debt has ballooned on indirect borrowing via financing vehicles.

A survey of local governments by the National Audit Office revealed that their direct and indirect debt came to 17.9 trillion yuan ($2.9 trillion) as of June 2013, up from 10.7 trillion yuan at the end of 2010. Nearly 22 percent of the government debt will mature this year.

"We will strengthen local government bond management and proactively control fiscal risks," Li said.

According to the premier, authorities will gradually remove debt raised via financing vehicles, while any new borrowings will be capped and managed according to categories.