MNI BRIEF: China Should Back Off Local Govt Bond Overreliance

China should re-think its over-reliance on local government debt to make macro-economy adjustments as the regions are struggling to find suitable projects for investment but their leverage ratios are rising at pace, a senior policy advisor said Wednesday. To help balance this, China should take a market-oriented approach by relying on companies to find projects to boost the investment, Li Yang, the director of National Institute of Finance and Development, told the Caijing Annual Forum.

The dual circulation strategy, emphasizing domestic consumption to sustain economic growth, requires the government to pay attention to private companies and small-and-medium enterprises and lower administrative costs, Li said. Household leverage ratios are rising too, according to Li who believed, in contrast to market participants' speculation, that the growth can be more credited to the rising mortgage house loans this year rather than the increase of consumption loans.

China's Yuan may play an important role when the countries deal with outstanding debts -- pushed even higher this year due to Covid-19 easing measures, Li noted, adding that the "current international currency system needs revaluation and changes now" .He said market-oriented forex reform has achieved a decisive result, but interest rate reform has a lot more to be done and the curve of China government bonds has not been fully established due to many factors including the immature government bond market.