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Buyer Community> Trade Intelligence> news> Local govt debts not the real risk
Source: China Daily China Daily

Local govt debts not the real risk

Published: 25 Feb 2015 01:21:18 PST

Most debts raised by local governments and companies in China are used for investment. This is different from the debts of some countries, says an article in People's Daily.

Some Western media said the slowing economy and deflation pressure are pushing China to the brink of a debt default cliff.

Although some local government, housing market and shadow banking debt risks occasionally appear, the whole economy is still healthy. The index of financial agencies is fine. The operation of the financial sector is stable; the overall financial risks are under control; and China has the ability to ensure that no regional and systemic financial risks arise.

Only a small part of China's debt is borrowed from abroad, and China also saves markedly more than many other countries. China's urbanization will gradually cool down the overheated real estate industry in some places, and make the housing market a stable long-term consumption market meeting the increasingly diversified demands.

Household debt accounts for about 20 percent of GDP in China, compared to 96 percent in the United States. China's local government debt ratio is about 39.43 percent now, lower than the 60 percent warning line set by the European Union.

The Chinese economy is always in a dynamic and progressive process. But many observers in the West stubbornly apply a rigid framework in predicting China's future.

The new Budget Law, if well implemented, will effectively solve the debt issues in China, and make government debt better supervised, regulated and more transparent.

The government will persevere with reforms, because the halting of reforms is the true risk for the Chinese economy.

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