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REPEAT: MNI: China Says Local Governments Won't Be Bailed Out

Repeats Story Initially Transmitted at 09:11 GMT Dec 25/04:11 EST Dec 25
     BEIJING (MNI) - The Ministry of Finance said in a report on its working
plan that the central government will never bail out local governments by paying
their debts, and would prevent local governments from launching new projects
they are unlikely to afford and are not profitable.
     In making its views on the matter public, the MOF said it wanted to break
the "myth" that the government could always be relied on for bailouts, the
report said. 
     The MOF said in the report, published over the weekend, that it would
prioritize the prevention of local government debt growth. As part of the plan,
the MOF will urge financial institutions not to provide funding to local
projects that do not generate "constant and stable" cash flows. 
     In addition, the report said state-owned enterprises must not serve as
funding tools to finance local governments.
     The report said a "default mechanism" would be established for local
government debts in a market-oriented and legalized way, with debt holders and
debt issuers sharing risks. The mechanism to hold relevant parties accountable
for illegal and inappropriate debt issuances will be researched and established,
the report said.
     The MOF said it would encourage local governments to issue debt in a legal
way, while inappropriate and illegal debt issuances, such as through
public-private partnership (PPP) projects, would need to be corrected. The MOF
also said it would allow local government debt quotas to rise "reasonably" to
support projects that focus on public welfare and that can generate "some"
profits. 
     In addition, the MOF will continue to push local government financing
vehicles (LGFVs) to transform themselves into more market-oriented companies.
--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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