China to strengthen management of local gov't debt

China will strengthen management of local government debt to "strictly" prevent and control fiscal risks, according to a draft budget report distributed at the annual parliamentary session Thursday.[Special coverage]

The world's second largest economy vowed to establish a standardized mechanism for debt financing by local governments, which features both general debt and special debt, and to improve the market-based pricing mechanism for local government bonds, the report read.

Critics have long doubted China's ability to manage the surging local government debts. But Chinese authorities have said that the country's overall government debt risk is controllable.

Auditing showed that debt directly incurred by China's local governments totaled 10.88 trillion yuan (1.77 trillion U.S. dollars) at the end of June 2013.

China announced Thursday 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.

Total government budget deficit for 2015 is projected to be 1.62 trillion yuan, an increase of 270 billion yuan over last year, which consists of 1.12 trillion yuan of central government deficit and 500 billion yuan of deficit at local government levels, Premier Li Keqiang said in his government work report Thursday.

According to the draft budget report, the Chinese government will impose ceilings for local government debt, and place local government debt under budgetary management for general public finance and government-managed funds.

To contain fiscal risks, warnings will be given to regions where high risk is detected, and local governments will be urged to set up crisis management mechanisms and formulate contingency plans, according to the report.

A system for releasing information on local government debt will also be established, with regular public disclosures, it said.

The country also promised to make appropriate arrangements for handling outstanding debts and follow-up financing for on-going projects.

Last month, China's central bank vowed to increase the transparency of local government debts in an effort to alleviate potential risks.

(Updated)