No Central Government Debt Relief

Yesterday, the Chinese government website issued a report that the general office of the State Council issued the "opinions on strengthening the management of local government debt". The main contents of the "opinion" include three points: first, the problem of "how to borrow" can be solved by making clear the main body of borrowing, standardizing the way of borrowing, and strictly borrowing procedures. The two is to solve the problem of "how to manage" by controlling the scale of borrowing, limiting the use of debt, and incorporating budgetary management. The three is to solve the problem of "how to repay" by drawing up debt paying responsibilities, establishing risk early warning and improving emergency disposal. In addition, in order to ensure the smooth transition of the reform, the opinions clearly put forward that properly handling the stock debt, we should ensure the follow-up financing of the projects under construction, and guard against risks. Yuan Gangming, a researcher at Tsinghua University's China and world economic research center, said that the "opinion" came out at the right time.

Yuan Gangming: our country's local government debt is rising. For example, when we compare the GDP as the central government, the central government's debt accounts for 20% of the total GDP, while the local debt accounts for 50%. The total of these two accounts for 70% of the total government debt, so the local debt is now a major part of the government debt.

The opinions stipulate that governments at all levels should formulate contingency plans and establish accountability mechanisms. When local governments have difficulty in paying debts, they should raise funds to repay debts by way of controlling the scale of projects, reducing public funds and disposing stock assets. When local governments are unable to repay their debts voluntarily, they must report in time. At the same time, the government at the same level and higher levels should initiate contingency plans and accountability mechanisms for debt risks, effectively resolve the debt risks and investigate the responsibilities of relevant personnel.

The most important concern in the opinion is: "we must harden our budgetary constraints and prevent moral risks. Local governments are responsible for their debts. The central government implements the principle of no rescue." Financial commentator Ye Tan used "fundamental change" to describe the newly issued document.

　　 Ye Tan : local debt If it is completely liberalized, and if the central government does not make the best of its finances, then the impact will be huge and fundamental. Our previous budget law does not allow local governments to borrow money. Even if the early stage of borrowing is also carried out by the central government, the credit rating agencies of the market are now assessing the risks and the local governments are responsible for them, so this is a fundamental. change If this change is achieved, it will mean that China's budget law has been fundamentally revised.

However, there is also a voice questioning: will the central government really sit idly by when the extreme situation arises and the local government is unable to pay its debts? Yuan Gangming's view is:

Yuan Gangming: so what? What about the bankruptcy of the local government? If the country doesn't care about that, we won't get there yet. So we are referring to the responsibility of the local government to bear the debt, no matter how serious it is, it must be solved by itself. But on a whole, in a general scope, the local government must take the place to bear it, so the central government can not manage it arbitrarily.