China has set up a debt-management department that will oversee borrowing by central and provincial governments, set debt ceilings, and police the murky world of liabilities generated by local government financing vehicles (LGFVs).
It is headed by Li Dawei who was until recently in charge of a government debt research and rehabilitation body.
Recall that last year the Chinese government had issued a 1.1 trillion debt-relief package to ease funding pressures on cash-strapped provinces and shore up flagging growth. The package underscored Beijing’s consolidation of the purse strings.
“Since the 1994 tax reforms, local governments can neither introduce new taxes nor alter rates without Beijing’s approval,” says China scholar Amit Kumar of the Takshashila Institution. “Even their borrowing quotas are centrally assigned. This new department merely reinforces that existing control.”
The department will streamline oversight and improve administrative efficiency, not to rewrite fiscal power equations. It sends out the clear message that fiscal risk management is now front and centre in Beijing’s economic strategy.
Old Problem, New Structure
“Tackling local debt has been a central government priority for over a decade,” Kumar noted, adding that “Audits began in the early 2010s, and multiple reforms followed after 2014. This is not a sudden pre-emptive measure; the leadership knows the scale of the problem. The challenge is that the debt mountain is simply too vast to dismantle quickly.”
Finance Minister Lan Foan has pledged to enhance debt-management mechanisms over the next five years to support “high-quality economic development”.
But the underlying message is clear: the age of easy local borrowing is ending, and Beijing intends to keep every yuan of public debt under its watchful eye.
Research Associate at StratNewsGlobal, A keen observer of #China and Foreign Affairs. Writer, Weibo Trends, Analyst.
Twitter: @resham_sng
