China’s regulatory authorities ask financial institutions to check local government debts

Beijing. February 9. Silkroadnews - Chinese authorities in the south-western province of Sichuan asked financial institutions to carry out self-inspections on their financing of local authorities, Reuters reported citing the informed sources.
The new rules are the latest in a series of tough measures taken by Beijing to curb the growth of local government debt, while politicians are increasingly wary of hidden risks to the world’s second-largest economy.
China’s public debt grew 7.5% to 16.47 trillion yuan ($2.56 trillion) at the end of 2017 compared to the previous year, but remained within the government’s target.
In a January 16 notice, the central bank branch in Chengdu City and the branch of the Ministry of Finance (MoF) in Sichuan, among other things, asked financial institutions to independently verify the funding of their public-private partnership projects (PPPs) and participation of local authorities in the funds.
Self-inspections also cover, among other things, guarantees, written commitments, the use of finance to purchase services, etc.
“We “need to fully understand the importance of regulating the financing behavior of local governments, place more importance on guarding against risks”,” the agency quoted the notice.
Self-inspections also include financing of local authorities and use of state assets as collateral, including the use of land funds as collateral.
The plan follows the decision of China’s top leadership adopted at the annual economic conference in December, in which politicians said they would strengthen the regulation of local government debt in 2018 to reduce financial risk.
In January, the China Insurance Regulatory Commission and the MoF stated that while buying local government bonds is encouraged, insurers should not provide financing to local governments in ways that violate the rules of the central government.