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