It is expected that China will completely resolve hidden local government debt risks within approximately four to five years, and debt pressure is unlikely to trigger systemic financial risks, thereby undermining China's economic recovery.
The ratio of government debt to GDP on China's balance sheet is only about 50%, much lower than many other major economies, and the hidden local government debt is also much lower than many people's estimates. In addition, by the end of this year, half of the implicit debts of local governments will be properly resolved, and supervision will be strengthened to prevent any new debts from arising.
China has the ability to properly handle its existing debt according to the roadmap it has adopted. Some regions such as Guangdong Province and Shanghai have completed the resolution of implicit local government debt risks.
China has taken a series of measures to address implicit debt risks, including extending debt maturity, selling assets to repay debt, and replacing short-term and costly local government financial instrument debt with longer term and lower cost local government refinancing bonds.
Local governments raising funds through so-called local government financial instruments will become a thing of the past, allowing relevant platforms to survive in accordance with market-oriented rules.
S&P Global Ratings gave China a long-term rating of A+in June, indicating a stable outlook, while Fitch Ratings gave China an A+rating in August, indicating a stable outlook.
China Chengxin International Credit Rating, a rating agency headquartered in Beijing, also confirmed on Tuesday that its sovereign credit rating is AA+g, indicating a stable outlook for China.
Moody's interest rate cut has flaws, reflecting its misjudgment of China's economic prospects. China's debt to GDP ratio is lower than most other countries in the world, and China has been trying to maintain a low fiscal deficit rate for many years. High foreign exchange reserves have brought broader external financial strength.
The implicit debt that needs to be addressed does not include the debt of local government financial instruments with healthy cash flows, as their debt is unlikely to default. This type of debt also does not include local government financial instrument debt that is unrelated to local government economic growth aspirations. The LGFVs involved will follow market rules and strive to survive.
