Top economic planner satisfied as issuance plan is working as intended

China will not face systemic debt risks, as long as existing local government debt is kept under control, a senior official with the nation's top economic planner said on Wednesday.

The country has recently introduced a new legal framework to strengthen the management of local debt by allowing local governments to issue their own debt directly, phasing out indirect central financing platforms.

By the end of June 2013, local government debt had stabilized at about 12 trillion yuan ($1.96 trillion), 4 trillion yuan of which was borrowed through local government financing vehicles, according to official data.

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"Debt levels in some regions are relatively high, and undoubtedly a ceiling should be set for these regions to avoid any further rises," said Xu Lin, director-general of the department of development planning under the National Development and Reform Commission.

For some of the existing borrowings, regulators should either reasonably extend debt repayment terms or replace old local government debts with new bonds to help local governments ease their financial burden, he said.

"By taking advantage of extensions in repayment periods local debt can return to safer levels as the economy grows," said Xu.

China revised its Budget Law in August to allow the nation's local governments to issue their own debt.

Previously, local governments had to resort to their finance vehicles or request the Ministry of Finance issue to debt on their behalf. New debt must be raised directly by local governments and the regulators have stressed that the central government would not bail out any local obligations.

Financing is also a core issue within the country's first urbanization plan for the 2014-20 period, unveiled by the State Council in mid-March, as local revenues in some regions were still highly dependent on the real estate sector.

Some local governments have seen their heavy debt burdens taking up a larger share of their off-budget spending, financed through local government financing vehicles.

Xu said the debt issue plans have been progressing smoothly since being launched and his department is now working on detailed plans for the launch of pilots in specific cities.

It roughly costs 80,000 yuan to 110,000 yuan to bring a migrant worker to settle in a city, but there is no estimate of the total costs of rolling out a nationwide plan, Xu said.

"In general, costs for local government borrowing were too high. Diversified financing mechanisms will be introduced to help bring down local debt to reasonable levels," he said.

For projects that can generate stable revenues over the long term, public-private partnerships - contractual partnerships between public and private-sector agencies - are expected to be used to attract private funding, especially for infrastructure and other public services projects.

For those contracts not expected to generate high levels of revenue, local governments will be encouraged to use bonds to cover their expenditure, he said.