Ministry of Finance Photo: VCG

China's Ministry of Finance (MOF) said on Monday that the debt risks of local governments have eased overall, with the amount of hidden debt showing a declining trend. The debt risks of local governments are generally under control.

A meeting of the Political Bureau of the Communist Party of China Central Committee held in July 2023 pointed out that the country will effectively guard against and defuse local debt risks, and formulate and implement a package of debt-clearing plans.

Following the meeting, relevant government agencies and local governments stepped up efforts to defuse local debt risks, which have produced positive effects, the MOF said, according to a statement released on Finance and Accounting on Monday, a publication under the ministry.

Within the cap of local government debt, the ministry has arranged a certain amount of special refinancing bonds to support localities, especially those with higher risks, to defuse hidden debt. This has helped relieve local governments' debt repayment pressure and reduce their interest burden, according to the MOF.

In a draft document on the management of urban facilities released by six departments including the MOF, the authorities banned borrowing for urban facilities that produce no yields or insufficient yields, asking not to increase hidden debt. Meanwhile, it noted that the revenue generated by urban facilities built on special-purpose local government bonds should be used for paying back principal and interests.

In the first seven months of this year, newly issued special-purpose bonds for local governments amounted to 1.78 trillion yuan ($249 billion), with the proceeds mainly used in key fields including industrial parks, public welfare and transport infrastructure, providing strong support for the high-quality economic and social development, it said.

Local government debt ratios remain within a reasonable range, Liu Guohong, director of the Department of Finance and Modern Industries at the China Development Institute in Shenzhen, South China's Guangdong Province, told the Global Times on Monday.

"Chinese local government debt has two parts - explicit and hidden. The latter includes borrowing by local government financial vehicles. Overall, explicit debt levels are not high, while governments are taking active measures to defuse hidden debt," Liu said.