Ministry of Finance releases action plan to combat local government debt

The Ministry of Finance has released a report detailing eight typical cases of illegal activities and improper handling of hidden local government debt as the country is getting serious about tackling the off-balance sheet debt risks.

These cases span a wide range of cities and counties in provincial-level regions such as Hubei province, Guangxi Zhuang autonomous region, Shaanxi province, Henan province, Sichuan province and Jiangxi province, incurring hidden debts totaling about 46 billion yuan ($6 billion), the ministry said in a statement published on its official website on Monday.

Among the eight cases, cities and counties in Hubei and Guangxi were saddled with relatively large amounts of new hidden debt, exceeding more than 20 billion and over 17 billion yuan, respectively.

Due to the rapid growth of local government debt in China over the past few decades, compounded with the impact of the COVID-19 pandemic over the past three years, local governments currently face significant financial burdens.

Although China's government leverage level is not high by international standards, the debt level of local governments significantly surpasses that of other major economies.

Against that backdrop, China is taking solid steps to pave the way for further moves to resolve local debt problems.

The recently concluded Central Financial Work Conference said efforts should be made to establish a long-term mechanism to guard against and defuse local debt risks, set up a government debt management system that is compatible with China's pursuit of high-quality development, and optimize central and local government debt structures.