China to clean up local govt debt

China will strengthen local government debt management and strictly control new borrowing to prevent fiscal risks, its finance minister vowed on Wednesday.

The nation will continue to clean up and regulate local government financing vehicles and bar them from incurring new debt, Xie Xuren said in a final report on the implementation of the 2011 budget to the ongoing session of the Standing Committee of the National People's Congress.

China has intensified efforts to clear the massive debt of its local governments, which amounted to 10.7 trillion yuan ($1.7 trillion) at the end of 2010, in an effort to prevent widespread defaults from destabilizing growth in the world's second-largest economy.

Xie ruled on Tuesday that local governments are prohibited from issuing bonds directly except as otherwise prescribed by laws or the State Council, a strong signal that the country will try to limit local government debt and contain fiscal risks.

China will improve its local government debt management system, Xie said, while calling for a risk warning mechanism to protect against local debt defaults.