China Officials Demand Accountability On Local Govt Debts

--Stricter Oversight To Come With More Guidance

By Vince Morkri

     BEIJING (MNI) - China government officials have vowed to use "the full

force of the law" in bringing to heel local governments that use illegal

financing methods, such as off-balance-sheet funding of local projects through

local government financing vehicles.

     Vice Minister of Finance Liu Wei said Friday at a press conference at the

State Council Information Office that the government had improved guidance to

local governments on their debt issuance, and that there would now be "lifelong

accountability" from local government officials that abuse financing laws.

     Liu said the government would continue to require that local governments

replace their debts with local government bonds issued by provincial fiscal

departments, thus gradually lowering their debt burden, in line with the central

government's financial deleveraging policy.

     For local governments that do not comply, "We will go after and expose

those illegal and irregular financing activities," Liu said. "In addition to

correcting those irregularities, we will also hold those responsible

accountable."

     President Xi Jinping on Monday urged the government to "urgently tackle the

risks" from local government financing during a meeting of the Communist Party's

Politburo, and a gathering earlier this month of the country's top financial

regulators emphasized that local governments would be subject to stricter

monitoring.

     But Liu said that with local government debts falling below the

government-set ceiling of CNY17.19 trillion at the end of last year, "the debt

level in China is under control -- we say this very confidently."

     Liu said local government debts this year were substantially short of the

CNY18.82 trillion ceiling set for the year.

     Wang Kebing, the deputy director general of the Finance Ministry's Budget

Department, said at the press conference that the government would continue "to

follow legal procedures to determine the ceilings for local government debt

financing," and then help local governments start pilot programs to have

"project-based and revenue-based special debt issuance."

     He said that this would ensure local governments have access to financing

without resorting to illicit fund-raising, such as using public-private

partnership projects as a pretext for unauthorized borrowing.

     "These activities are irregular and illegal," Wang said. "Once we discover

such incidents, we will pull no punches and go after them with the full force of

the law."

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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