China Reassures Investors on Manageability of National Debt
According to a report from the official Chinese news agency Xinhua, the Chinese government has assured investors that its debt is manageable. Authorities have plenty of financial resources to prevent the spread of possible default risks, writes Bloomberg.
To allay investor concerns about China’s financial stability, an anonymous official from the country’s Ministry of Finance stated that the state’s finances were generally healthy, and that local authorities could handle their debts quite adequately.
According to the official, the current problem is that the distribution of debt by local governments is unbalanced. Some regions of the country are particularly exposed to risks, are experiencing significant pressure due to both the principal amounts of debt and interest payments.
Nevertheless, authorities in the country control the situation to prevent any systemic risks from emerging.
The rapidly rising level of municipal government debt in has become Asia’s main risk and headache for investors this year. Many local authorities in the country are facing solvency problems after the decline in land sales revenues, which is the primary source of government revenue due to the recent slump in the property market.
Last year, the national debt was estimated at 156 trillion yuan ($22 trillion), or 126% of the country’s GDP, according to analysts. Hidden debt and off-balance-sheet borrowing are also included in this total. Some regions barely avoided defaulting on their bonds last month by trying to cope with the debt payments.
China is likely to resolve this problem with the help of banks, debt restructuring, and local asset sales, including land and shares of state-owned enterprises.