Xi Yanchun:
This will be the last question due to time constraints.
China Daily:
I would like to confirm some information about two aforementioned questions. First, is it true that the to-be-determined debt of China’s local governments is about 7 trillion yuan? Second, is it true that it’s not illegal to raise a loan through financing platforms? Thank you.
Wang Kebing:
What I have mentioned just now was the liability or contingent liability of local governments, but the contingent liability is neither the debt of local governments nor debt to be determined. Government liability means that a government is legally liable for repayment of the debt. Local governments’ contingent liability means that a local government is obliged to guarantee the debt or responsible for providing certain assistance. According to statistics by local governments, the amount of contingent liability was 8.6 trillion yuan at the end of 2014, and the number now has decreased to more than 7 trillion yuan after paying back some of the debt. These contingent liabilities are not governments’ debts, in other words, they are not local governments’ legal debts which must be repaid. They were brought into monitoring system because the liabilities occurred before the new budget law took effect. As for local governments’ contingent liabilities, the highest compensatory payment rate that local governments repaid for companies did not exceed 20%, according to 2013 audit results by the National Audit Office. The liability ratio of all the governments across the country, if we calculate it strictly based on the legally defined government liability, will be 39.4 percent, which is also the share of government liability to GDP. Considering the risks, the ratio will be increased to around 41.5 percent if the contingent liability is taken into account under a 20-percent formula. It is an internationally accepted practice to evaluate risks by considering contingent liabilities of a certain percentage. It is also a method that has been adapted to China’s situations.
As for debt being raised through financing platforms, we should distinguish its legality before and after the launch of our new budget law which took effect on Jan. 1, 2015. The old budget law did not explicitly stipulate whether a government could raise a loan through financing platforms, but the government debts that were raised through financing platforms for conducting public welfare infrastructure projects have been involved in local governments’ debt limits. Local governments’ debt stock was 15.4 trillion yuan as of the end of 2014, most of which was raised through financing platforms. After the new budget law took effect on Jan. 1, 2015, the law and No. 43 document of the State Council stipulated that local governments at all levels are prohibited to raise government debts through financing platforms. If they did, it would be illegal. After Jan. 1, 2015, governments shoulder a limited liability for debts raised by financing platforms based on their amount of investment. The law explicitly stipulates that local governments cannot bear unlimited liability for the debts of financing platforms; otherwise, it would be an illegal action. Therefore, I would like to remind the financial institutions to pay attention to the change of policies when lending to enterprises. Make note of the risks and losses. We are working together with relevant departments to advance market transition of financing platform companies. A number of “zombie” financing platforms will be shut down gradually, whereas those who have operating income will enter the market and raise funds through market approaches just as regular enterprises do, but local governments are not allowed to repay for or guarantee their liabilities. Thank you.
Xi Yanchun:
Finally, allow me to say a few words. Today’s briefing is an important endeavor. We hope to provide our friends from the press with more accurate and real information, and we also hope that you will produce comprehensive, real and precise reporting.
At this time, we would like to end the press conference. Thank you.
Go to Forum >>0 Comment(s)