China says to impose quota limit on local government debt

[BEIJING] China will cap the amount of debt local governments can issue and adjust the quota based on economic performance, the finance ministry said on Monday.

China will appropriately expand local government quotas if there is increasing downward pressure in the economy while cutting down the quota when the economy improves, the ministry said in a statement on its website.

China will also comprehensively evaluate the risks of local government debt and give early warnings to local governments who have high debt burdens.

China has been struggling to control the growth of its massive local government debt pile, officially estimated at 15.4 trillion yuan (US$2.34 trillion) in 2014, without hamstringing the ability of municipalities to invest and support growth.

In March, the ministry announced a 1 trillion yuan debt swap programme to help municipal governments refinance high-interest, largely off balance sheet maturing debt with lower interest debt issued in the new municipal bond market. The size of the programme was later expanded to 3.2 trillion yuan.

REUTERS