China should permit local governments to go bankrupt in order to help cope with the excessive borrowing of regional authorities, – says a China central bank official.
According to the article of Xu Zhong, head of the People’s Bank of China research bureau, in the Business News Monday, such a case as the bankruptcy of Detroit could reassure investors that the central government is intended to dispel thoughts of an implied warranty for regional authorities. A few days ago, finance ministry of China claimed to break the fable that Beijing would bail out the hidden debt of local governments.
Appeals for reducing local borrowings are a part of the financial policy of central governments for the year 2018. According to the President Xi Jinping, controlling leverage and preventing major risks is a priority for next year. Zhou Xiaochuan, the governor of China’s central bank, called to protect against financing vehicles of local government and was in favor of fiscal reforms.
Numerous concerns about a lack of support for local funding units among investors caused a sharp drop in the local governments’ debts issuance. Local government funding mechanisms have sold CNY 1.7 trillion ($259 billion) what shows 23% drop from the level of the year 2016.