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Room seen for added govt debt

Xin Zhiming
Updated: May 27,2016 9:16 AM     China Daily

China said on May 26 that its overall government debt level remains controllable and there is still room for further increasing debt.

The Ministry of Finance said that by the end of 2015, the central government debts “subject to budgetary management” totaled 10.66 trillion yuan ($1.63 trillion), while such debts of local governments were 16 trillion yuan. Combined, they account for 39.4 percent of China’s GDP, it said.

China’s overall government debt ratio was about 41.5 per-cent in 2015, lower than the warning line of the EU, which is 60 percent, the ministry said. The ratio was also lower than that of major market economies and emerging-market countries, such as Japan and Brazil.

The local government debt risks are also manageable, the ministry said in a statement. Last year, the local government debt ratio was 89.2 percent, lower than the generally accepted warning line of the international community, it said.

Unlike in some countries that have encountered debt crisis, China’s local government debts are backed by high-quality assets, so their repayment is not considered to be a big problem. The repayment will also be supported by China’s expected medium to high economic growth, the statement said.

“On the whole, China still has some room for increasing its government debts,” the ministry said. The government can continue to increase leverage at an appropriate time to help enter-prises to lower their leverage level, the statement said-meaning that the scale of treasury and local government debt issuance can be expanded moderately.

“It will keep the overall debt contraction from having an adverse impact on the economy,” it said.

International rating agency Moody’s said in a research note on May 23 that the fiscal and economic conditions of China’s local governments could improve this year fol-lowing the increasing tax revenues and land transfer incomes of local governments in the first quarter.

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