China limits local government debt amid fears of massive borrowing

BEIJING – Chinese State media is reportingthat the standing committee of China’s National People’s Congress has approved ae ceiling of RMB16 trillion (USD 2.5 trillion) in local debt for this year. The total for 2015 is made up of the RMB15.4 trillion in local government debt outstanding as of the end of 2014 and RMB 600 billion deemed the limit localities can take on in additional borrowing this year.

Xinhua reported that a new budget law and a Government directive earlier stipulates that China should limit the local government debt balance and that the size is subject to approval by the NPC after submission by the State Council.

As the world’s largest-economy tries to control massive regional borrowing as China enters the “new normal” era, in addition to transforming the economic model away from debt-fueled investment projects and more towards consumer spending, curbing local government debt has become an increasing target.

Fitch Ratings said in a statement on Friday that the standing committee’s decision to approve the debt ceiling shows a “commitment by the authorities to bolster the borrowing framework for local government as part of a broader debt reform initiative”.  www.webershandwick.cn (ATI).