China’s local governments were mostly financially stable last year, the country’s finance minister said, adding that fiscal conditions will likely improve in 2023.
(Bloomberg) — China’s local governments were mostly financially stable last year, the country’s finance minister said, adding that fiscal conditions will likely improve in 2023.
While some regions are still dealing with high levels of risk from debt and pressure to make repayments, the overall picture for local government fiscal conditions was “stable” in 2022, Finance Minister Liu Kun said in a briefing on Wednesday. He vowed that Beijing would allow them to sell a “reasonable” amount of special bonds to support investment.
“We have urged the relevant local governments to take on their responsibility and resolve government debt risks, and guard against the bottom line of preventing systemic risk,” Liu said.
The sustainability of local government debt and the health of their finances has grown as a concern over the past year, particularly as the income they receive from land sales has plunged. That problem, combined with the massive amount they spent last year on Covid control measures, contributed to a record fiscal deficit.
A majority of regional governments are facing a serious funding squeeze, with outstanding borrowing exceeding 120% of income in 2022, according to Bloomberg calculations.
Liu said, however, that the decline in land sale income had only a limited impact on finances, given that a small portion of that income was set aside for use in their general budget expenditures. That money covers spending on public welfare and education, among other sectors.
The amount of funds that the central government has transferred to local regions in recent years has also grown quickly, Liu added, effectively making up for any shortfall.
Along with reasonably setting a quota for the sale of special local government bonds this year, Liu added that fiscal spending would be expanded moderately. He said the overall level of government investment wouldn’t decline.
Economists surveyed by Bloomberg expect the government to lift the quota for those special bonds, as well as raise the official fiscal deficit target slightly from last year’s target of 2.8%. More will be revealed next week as the annual National People’s Congress kicks off.
–With assistance from Jing Zhao.
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