context: A new round of local government debt relief has been in play since the middle of 2023. Beijing has targeted the most at-risk provinces with restrictions on taking on new debt while allowing them to issue refinancing bonds to prevent defaults. In October 2023 the National People’s Congress approved an additional C¥1 tn in central government deficit spending, in part to provide local governments with debt-free investment funds.
The central government is restricting investment projects in 12 provinces with high debt levels, reports Caixin. The State Council has been directing local governments and banks to postpone or halt investment projects in which less than half of the budgeted funds have been spent, unless the project is deemed necessary by provincial authorities.
The State Council also told governments to increase efforts to lower debt to mid-low levels. Included provinces are mostly found in poorer western and central regions targeted by the centre for enhanced debt relief.
The restrictions are not as strict as reported in the media, an unnamed local official from one of the targeted provinces told Caixin. Projects are to be divided into three categories
- prohibited new construction
- social support
- enhanced examination and approval
The prohibited category includes infrastructure projects like highways, with exceptions for some projects like urban rail. All city infrastructure other than heating, water and electricity-related projects are restricted.
Social support projects include those related to the ‘three big projects’, included in the 14th 5-year plan, or others guaranteeing people’s livelihood. These projects will continue to receive fiscal support and are allowed to raise funds by taking on debt.
Enhanced examination and approval projects include those with a demonstrated need and clear funding sources. In principle, they should not take out loans and should strive to reduce the total size of investment.