Reports overstate amount involved: expert
Financial authorities are considering expanding the local government debt swap program, but not by as much as media reports have claimed, an expert on fiscal policy at an institute under the Ministry of Finance (MOF) told the Global Times Monday.
Bloomberg reported Monday that following the MOF's announcement on March 8 of a program to convert 1 trillion yuan ($161.3 billion) in local government debts into bonds, the central government is considering launching a second round of the program, with a further 500 billion yuan to 1 trillion yuan of local debts set to be converted into bonds issued by local governments.
The authorities are considering a second round for the local debt swap program, but the volume of the swap will not be as large as reported, said Wang Zecai, a research fellow with the Research Institute for Fiscal Science under the MOF.
The MOF had not commented on the issue by press time.
"The economy has shown signs of improvement recently, so there is less need for support measures," Wang noted.
However, the next move in terms of the local government debt swap program will depend on the continued quality of the country's economic growth, which will be reflected by a batch of upcoming economic data, Wang said.
The second round of the debt swap program will still involve replacing old debt with new debt, a source close to the matter told the Global Times Monday on condition of anonymity.
The volume of the debt swap program could even be enlarged in the second round, the source said, as local governments still need financing resources to support investments and projects.
However, financing will be used differently by the local governments, the source noted. For example, they will have to pay more attention to the credit quality of infrastructure projects they invest in and enhance their debt-servicing capacity.
East China's Jiangsu Province issued government bonds worth 44.87 billion yuan on Monday, as part of the 1 trillion yuan debt swap program, according to information published on chinabond.com.cn.
On March 8, the MOF announced that the State Council had approved a quota of 1 trillion yuan for local governments to convert their maturing high-interest debts into municipal bonds in order to ease financing pressure.
The first round of the debt swap program is expected to be completed by the end of August, the MOF said in a statement on May 15.
Local authorities in China have been struggling with ballooning debts, partly as a result of the 4 trillion yuan stimulus package rolled out from 2008 to 2009 to curb the effects of the global financial crisis, according to a bond market report released by Singapore banking group OCBC Group in March.
The central government issued a regulation in October 2014 to reclassify the credit-worthiness of local government projects and identify the liabilities of local governments, as non-transparency of local government debt has become one of the key risks for the economy, according to the report.
China's Finance Minister Lou Jiwei said at the Boao Forum for Asia held in March that the debt levels of China's local governments in general are under control, and Wang also said that the debt situation is largely under control.
"The debt ratio and budget deficit -ratio will not pass the limit set by the government earlier this year," Wang noted.
Uncertainty over the scale of local government debt and about how to deal with it remains a key issue for China's sovereign credit profile, according to a report published by US-based rating agency Fitch Ratings Inc in March.
Along with the debt swap program, the MOF and the central bank have also asked banks to continue extending loans to local government financing vehicles for existing projects that had started before the end of 2014, and to renegotiate debts where necessary to ensure project completion, according to Fitch.