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Rule tightens reins on govt borrowing

Updated: May 6,2019 7:01 AM     China Daily

A regulation unveiled by the State Council on May 5 prohibits authorities from borrowing in ways that skirt laws and regulations to raise government investment funds, as China works to further standardize official investment actions.

The regulation, published after a State Council decree was signed by Premier Li Keqiang, stipulates that government investment actions must take account of economic and social development levels and the situation of financial revenue and expenditures.

The budgetary restrictions over government investment funds will be further tightened, and government-funded programs must not be constructed with capital advances from contractors, the regulation said.

The regulation, to take effect in July, came after heightened efforts by the central government to rein in debts raised by local authorities, which are estimated to have reached 18.4 trillion yuan ($2.7 trillion) by the end of 2018.

Minister of Finance Liu Kun said in this year’s legislative session in March that China will adopt stringent measures to prevent new illegal borrowing by local authorities.

He said there has been action by local authorities to use financing platforms to raise debts in violation of laws and regulations, and the ministry will block the way for such illegal debt-raising behavior in the future.

The regulation also called for stricter implementation of programs and compliance oversight to ensure that the required funds of investment programs are in place on time.

The approval mechanism for government-invested programs will be further standardized, and major programs must go through procedures such as evaluations by intermediary service institutions, the public and experts, as well as risk assessment.

Government investment funds must prioritize investments into areas where the market cannot effectively allocate resources, such social services, public infrastructure and environment protection, the regulation said.

It also calls for equal treatment of various types of investment entities, adding that authorities should not set up biased conditions.

The premier said in his Government Work Report this year that China will pursue a proactive fiscal policy with greater intensity and enhance its performance.

A total of 2.15 trillion yuan of special local government bonds will be issued in an effort to provide funding for key projects and create conditions for better forestalling and defusing local governments’ debt risks, according to the report.