China Review News (CRN) recently reported the news that both Moody’s and Fitch downgraded Chinese currency and bond ratings. The news caused widespread concern in the international market, particularly about the scale of the debts accrued by China’s local governments. According to China’s former Treasurery Minister, Xiang Huaicheng, at present, local government’s debts are estimated to be over RMB 20 trillion. However, government officials are downplaying the risk level of this debt. Some have suggested that the debt is mostly domestic – it will not directly impact the global market. Some have expressed the belief that “the government has not yet seen any extremely damaging situations.” However, the central government has been paying significant attention to local government debt. The State Council had a meeting on April 17, focusing on the risk control of the local debt issue. New administrative rules are being designed. The general approach for future risk management is to stop bank loans to local governments. Instead, local government bonds will be the primary borrowing channel, which will require a market orientation.
Source: China Review News, April 19, 2013