Central Government Focuses on Precision Amid Local Debt Challenges
According to the South China Morning Post, while the central government is focusing on precise and effective economic stimulation, local debt poses a significant difficulty, with efforts to resolve hidden debt nearing a final stage.
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The South China Morning Post reports that the central government is emphasizing 'precision' and 'effectiveness' in its attempts to boost the economy, though local debt presents a more difficult obstacle. Unresolved, this local debt is cited as a major economic risk that prevents any substantial increase in domestic demand.
Lan noted that 5.8 trillion yuan (US$865 billion) of a 6 trillion yuan bond program intended to exchange local governments' undisclosed debt has been issued, indicating that the resolution process is approaching its conclusion. Furthermore, Lan issued a warning that any new hidden debt or unsubstantiated claims of debt reduction will be subject to strict investigation and penalties. Deleveraging and managing risk remain a priority, as Beijing is not planning to inject large amounts of cash into the economy for brief growth.
While the current approach is considered correct, Lan pointed out that the swap mechanism addresses existing debt rather than the underlying causes of that debt. The discussion then shifted to deeper structural issues, such as the operational deficits experienced by local government financing vehicles. Lan stressed the necessity of reinforcing local public budgets, suggesting potential measures like expanding tax bases and retaining a greater portion of value-added tax.
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