BOAO, China (Reuters) - China’s debt risks are “very much under control”, but local governments must ensure that the increase in their debt spending this year is within stipulated limits, Vice Finance Minister Liu Wei said on Friday.
Beijing tightened controls in recent years on new local government debt to ward off risks from an earlier borrowing binge that was aimed at softening the impact of the global financial crisis.
This year, China has capped the size of outstanding local government debt at 18.8 trillion yuan ($2.73 trillion), up from the 17.2 trillion ceiling in 2016, excluding bonds issued under a debt swap scheme.
At the end of last year, outstanding local government debt totaled 15.32 trillion yuan.
“China’s current debt risks are very much under control,” Liu said, but stressed that local governments must control the increase in debt within the limit set in the government’s budget report, released earlier this month.
A risk prevention system will be set up to monitor at-risk regions, he said at the Boao Forum for Asia in southern Hainan province.
“The government attaches great importance to the debt issue,” said Liu, who was appointed vice finance minister at the end of February.
Under a proactive fiscal policy, China has increased its overall budget deficit target by about 200 billion yuan to 2.38 trillion yuan this year to make up for reduced government revenues due to cuts in taxes and fees.
That is equivalent to 3 percent of gross domestic product, unchanged from the government’s target ratio last year.
“The increase in deficit spending this year should be for structural tax reform, upgrading manufacturing, and improving people’s well being,” Liu said.
“With the deficit ratio at 3 percent, we have a certain degree of leeway (in spending). But the increase in the deficit should be conducted in line with national social and economic growth needs.”
Writing by Ryan Woo; Editing by Simon Cameron-Moore