As reported by state media, the parliament standing committee of China met on Monday and discussed a proposal aimed at increasing the local government debt limit.
Finance Minister Lan Fo’an, who had suggested a potential modification to the local debt ceiling in a press conference the previous month, reaffirmed in the recent meeting that the planned fresh debt allocation is intended to substitute the current hidden debt.
Historically, local authorities in China have shouldered a significant portion of public services expenditure, but their financial challenges have intensified due to a decline in revenue from land sales to developers.
Nomura’s chief China economist, Ting Lu, revealed that China currently holds an estimated 50 trillion to 60 trillion yuan ($7 trillion to $8.45 trillion) in outstanding hidden debt.
Lu projected that around 10 trillion yuan in additional debt capacity might be sanctioned in the coming years to tackle a portion of this hidden debt. He also suggested that if China’s economy faces heightened challenges, Beijing could potentially increase the debt swap to 15 trillion yuan.
The standing committee of China’s National People’s Congress, managed by Committee Chair Zhao Leji, is convening this week and is widely anticipated to authorize further fiscal backing to prop up the nation’s slowing economic growth. The meeting is expected to be concluded by Friday.
