Photographer: Goh Seng Chong/Bloomberg
President Xi Jinping, seen here, and Premier Li Keqiang are grappling with a surge in… Read More
President Xi Jinping, seen here, and Premier Li Keqiang are grappling with a surge in local-government debt, risks from shadow banking and environmental degradation as they implement reforms unveiled after a Communist Party summit last month. Close
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President Xi Jinping, seen here, and Premier Li Keqiang are grappling with a surge in local-government debt, risks from shadow banking and environmental degradation as they implement reforms unveiled after a Communist Party summit last month.
China’s leaders pledged to tackle local government debt next year while creating a stable economic and social environment to promote reforms.
The government will maintain continuity and stability in its macro-economic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy, China Central Television reported, citing a statement from the annual Central Economic Work Conference that ended today.
President Xi Jinping and Premier Li Keqiang are grappling with a surge in local-government debt, risks from shadow banking and environmental degradation as they implement reforms unveiled after a Communist Party summit last month. The conference, held to map out economic policies for next year, concluded that the nation should seek “reasonable” growth in gross domestic product, without giving a target.
“Judging from the wording, it is more likely that next year’s GDP target will be set again at 7.5 percent rather than 7 percent,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The main risk identified next year is the local government debt but policy makers appear to be determined to prevent it from being realized.”
This year’s meeting, attended by the top party leadership and government officials, ran for four days compared with two days last year and three days for the years from 2008 through 2011. Xi and Li both made speeches, according to CCTV.
’Important Task’
“We must take controlling and addressing local government debt risks as an important task in economic work,” according to a statement from the conference read out on CCTV’s main evening news bulletin. Provincial-level governments will be held accountable for local debt, it said.
Last year’s meeting produced a statement that China will aim for a higher “quality and efficiency” of growth, instead of the “relatively fast” pace sought since 2006, a signal that leaders would tolerate slower expansion than the average pace of more than 10 percent a year over the past decade.
China will try to achieve a growth rate that will improve the quality and efficiency of development and won’t lead to any “hangovers,” according to today’s statement.
This year’s goal for economic expansion is 7.5 percent, the same as in 2012. An annual target of 8 percent was in place from 2005 to 2011 and it was 7 percent in 2004. Premier Li said in October that China needs annual growth of 7.2 percent to keep unemployment stable after indicating in July his “bottom line” for expansion was 7 percent.
’Downward Pressure’
The State Information Center, a government research institute, said China may set next year’s target at 7 percent, the Economic Information Daily reported Dec. 3, citing an annual report from the organization. The state-run Chinese Academy of Social Sciences also believes the goal will be set at 7 percent, the newspaper said.
Leaders warned of “downward pressure” on the economy, citing overcapacity, a deteriorating environment and food-quality issues, according to the CCTV report. The global economy will continue its “slow recovery” next year, with uncertainties and instability stemming from a lack of new growth engines and the monetary policies of “major countries,” it said.
China has said since 2008 that it’s implementing a “proactive” fiscal policy and started saying in 2010 that it’s following a “prudent” monetary policy.
“In our view, the fiscal policy stance in the past two years can be described as being prudent,” said Chang Jian, China economist at Barclays Plc in Hong Kong. “We think the central government continues to face challenges in maintaining medium-term fiscal sustainability as fiscal revenue growth fell sharply while debt and contingent liabilities are rising.”
Increased Risks
The State Council led by Li ordered a nationwide audit of local authorities’ debt in July, underscoring concern that borrowings by thousands of companies set up by regional governments to fund infrastructure projects have increased risks in the financial system. A document issued after the Communist Party’s summit last month said that debt will become one of several criteria used to rate local officials.
While the National Audit Office has yet to release the results of its review, Caijing magazine reported this week that local government debt may be about 15 trillion yuan ($2.47 trillion) to 18 trillion yuan, based on a forecast in March by the agency’s deputy director. That compares with an end-2010 total of 10.7 trillion yuan given in an audit office report in June 2011.
In a further sign of a debt clampdown, the official Xinhua News Agency said Dec. 9 that scrutiny of local-government borrowing will be strengthened and used as an “important indicator” for regional officials’ performance reviews. People should be punished for decisions that “result in huge losses to the country,” waste resources or cause ecological damage, Xinhua reported, citing a circular from the Communist Party’s Organization Department.
To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net; Xin Zhou in Beijing at xzhou68@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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