MNI BREIF: China's Policy Banks Should Help Tackle Hidden Debt

China's policy banks should support indebted local governments to clear up off-budget lending and convert debt raised for public projects into on-balance sheet debt, a senior policy advisor suggested in the 2022 Jingshan Report issued by China Finance 40 Forum on Saturday.

Zhang Bin, senior fellow at CF40, told reporters there is a room for policy banks to issue bonds and tackle local governments’ mounting “hidden debt” which has been mainly raised by their financing vehicles and invested in infrastructure projects. The local governments have suffered falling revenues and increased spending during the pandemic, with hidden debt becoming a heavy burden on the local governments and curbing their efforts to boost growth, said Zhang, who also deputy director of the Institute of World Economics and Politics at Chinese Academy of Social Sciences.

He said the central government should selectively swap some of the hidden debt with sovereign debt and coordinate with banks to restructure loans, or it could pose a risk to the banking system as many lenders have exposure to the debt.