It's expected that central authorities in China will strengthen management of local government debt to "strictly" prevent and control fiscal risk.
A draft budget report released today from the annual parliamentary session states that the country will establish a standardized mechanism for debt financing by local governments to improve the market-based pricing system for local government bonds.
The report also cites the need to contain fiscal risk, saying warnings will be given to regions where high risk is detected, and local governments will be urged to set up crisis management plans, and formulate contingency plans.
Justin Yifu Lin, the former chief economist and senior vice president of the World Bank has also commented on this move.
"Certainly, if some local governments, they already encountered some kind of insolvency issue, we certainly should not allow them to further expand and under that kind of situation, as I recommend, the government can have some kind of debt restructuring to take over those kinds of debt. In other localities, they still have very good investment opportunities, and they are in the stream of tax income, you know still in a very good shape in those areas, we certainly can support them for their expansion of investment," says Lin Yifu.
China announced today that it will raise its budget deficit to 2.3 percent of its gross domestic product (GDP) for 2015, up from last year's target of 2.1 percent.
The move is aimed at sustaining the momentum of economic growth and increasing economic returns.
