Recently, policy signals to effectively prevent and defuse local debt risks have been intensively released. Experts said that since the beginning of this year, China's economy has continued to recover, the overall recovery is good, and local debt risks are generally controllable. At present, there are many means to effectively prevent and resolve local debt risks, debt replacement, renewal, restructuring and other ways are optional, the time for the launch of a package of debt programs is gradually mature, it is expected that relevant policies and measures will be accelerated, and the issuance of special refinancing bonds is expected to continue to advance.

We will reduce the existing stock and strictly control its increase

In early July, the Chinese people's Net published the Report of The State Council on the Central Final Accounts for 2022. Effectively preventing and resolving local government debt risks is one of the next fiscal priorities proposed in the report.

At a meeting of the Political Bureau of the CPC Central Committee held on July 24, it was proposed to effectively prevent and defuse local debt risks and formulate and implement a package plan for debt reduction. On August 1, the People's Bank of China and the Bureau of Foreign Exchange held a work meeting in the second half of 2023 to coordinate the work of financial support for local debt risk resolution.

Experts believe that the intensive release of policy signals to effectively prevent and resolve local debt risks on the one hand shows that the importance of preventing and resolving local debt risks has increased; On the other hand, it means that the resolution of local debt risks will be accelerated, and it is expected that a package of debt reduction plans will be introduced one after another.

Lower the cost of debt

Data from the Ministry of Finance show that in the first half of this year, local government bonds matured to repay the principal of 1,633.5 billion yuan, of which 1,484.9 billion yuan was refunded by refinancing bonds and 148.6 billion yuan was refunded by financial funds.

As one of the package measures, some experts believe that a new round of hidden debt risk resolution pilot may be launched this year, allowing local governments to issue refinancing bonds to replace some of the eligible hidden debt, so as to extend the maturity of the debt, reduce interest, and slow down the risk.

"Special refinancing bonds can be issued within the limit to replace hidden debt." Zhang Jiqiang, chief fixed income analyst at Huatai Securities, said that this program is less resistance, some areas have started, and the follow-up is expected to continue to promote, mainly for the tail area of debt pressure, and the central government may unify the allocation of quotas when necessary.

Guangfa Securities fixed income chief analyst Liu Yu believes that the second half may usher in a new round of hidden debt replacement. "Whether it is a hidden debt swap or a debt rollover interest rate cut, the essence is to exchange low interest rates for high interest rates, to exchange time for space, to reduce debt costs and alleviate short-term debt repayment pressure." Liu Yu said.

It is expected to be the general trend to reduce core costs, roll over existing debt, moderate debt replacement and even individual debt restructuring. Citic Securities chief economist clearly said that the specific way to resolve debt or there are two types of mainstream programs. First, continue to issue special refinancing bonds, in the key window period of hidden debt resolution, the pilot system of hidden debt resolution of the county has the possibility of further expansion, therefore, special refinancing bonds are expected to restart issuance. Second, local governments negotiate with state-owned enterprises and financial institutions represented by banks to relieve the pressure of centralized debt repayment with the help of external forces and free up valuable time for long-term and stable development.

Promote institutional reform

Experts believe that at present, the trend of China's economic recovery has not changed, and local debt risks are generally controllable. In the medium and long term, to effectively prevent and defuse local debt risks, we need to continue to promote reform of the fiscal and tax systems and mechanisms.

Yuan Haixia, executive director of the China Credit International Research Institute, believes that in the medium and long term, on the one hand, we should continue to promote the reform of the fiscal and taxation system, accelerate the reform of the division of central and local powers and expenditure responsibilities, and strengthen the coordination role of the central finance; On the other hand, a complete debt regulatory framework should be established, implicit debt and statutory debt should be combined for supervision, and the debt information disclosure system should be improved, information should be disclosed according to a certain time frequency and comparable statistical caliber, and the expectations of all parties should be reasonably guided and stabilized.

"In the medium to long term, we should promote coordinated reform of institutions and mechanisms." Luo Zhiheng said that it is necessary to clarify the relationship between the government and the market, and define the responsibilities and scale of the government. We will deepen reform of administrative institutions and strengthen performance-based management. It is necessary to establish the incentive and restraint system of political performance appraisal and financial evaluation system under the multi-objective governance system. We will establish an accountability mechanism for assessing the effects of policies before they are introduced and for their implementation, so as to prevent risks in all areas from spreading to the public finances and overdrawing fiscal space.

It is more important to prevent the hidden debt risks of local governments from the source. Gao Ruidong believes that promoting the market-oriented transformation of investment and financing platform companies and stripping the financing function of non-operational projects of local governments is an important measure for the public sector to correctly handle the relationship between the government and the market, prevent the hidden debt risks of local governments from the source, and also the only way to promote the sustainable development of enterprises.

Source: Xinhua