China’s fiscal situation is sound, safe and has enough capacity for coping with risks and challenges, according to the Ministry of Finance (MOF), amid hype by some Western media outlets over China’s debt issues.
In a Xinhua News Agency report published on Monday, a representative from the ministry said the main issue with local government debt is that it is uneven, and some localities face relatively high risks over debt and pressure to pay for interest and principal on debt.
On account of this, the MOF has urged local authorities to fully shoulder responsibility to handle debt risks and hold the bottom line of avoiding systemic risks, the representative said.
The representative said the central government is now accelerating, in accordance with relevant rules, transfer payments from the general public budget to local governments. This will ensure that all eligible payments are duly rolled out and leave more time for localities to allocate and use these funds, the representative said. Such transfers account for roughly 40 percent of local fiscal resources. Central government transfer payments reached 10.06 trillion yuan for 2023, the highest in years.
The Xinhua report is a public response to concerns constantly raised by Western media outlets over China’s debt levels and hidden debts since May.
Chinese experts said there will be a process for local governments to regain their fiscal strength.
“The revenue of Chinese local governments is at a critical recovery stage after three years of epidemic impact, so there is indeed pressure,” Cong Yi, dean of the School of Marxism at Tianjin University of Finance and Economics, told the Global Times on Monday.
Cong cautioned that as the real estate industry is also in a recovery period – once a main source of income for many cities across China – temporary difficulties do exist.
“Nevertheless, looking at the longer term, since China’s economy will continue to improve, the pressure and challenges facing local finances, through their own efforts and national policy support, will definitely be addressed,” Cong said.
Some localities have experienced “tight” fiscal balance, but the Xinhua report said that an overwhelming number of localities realized net gains in fiscal revenue in the first quarter. Some places even posted double-digit growth.
For the hype over China’s local debt problems, Zhang Hong, an independent observer of the Chinese economy, said that China’s fiscal situation and system are quite different from those in some foreign countries.
“China has vast state-owned assets, as well as a healthy fiscal system to prevent it from having major risks of government debt like the US,” Zhang told the Global Times on Monday.
Experts expect fiscal revenues, especially tax revenues, to beat those of 2022 as the Chinese economy stages a steady rebound.
However, they urged caution in dealing with fiscal operation risks, considering the medium- and long-term socioeconomic risks.
China’s fiscal revenue maintained steady growth momentum in the first four months of 2023, MOF data showed in mid-May.
In part driven by the country’s continued economic recovery, fiscal revenue expanded 11.9 percent year-on-year to nearly 8.32 trillion yuan ($1.17 trillion) during the period, according to the MOF.
Fiscal spending rose 6.8 percent year-on-year to about 8.64 trillion yuan.
The data showed that the country maintained the intensity of necessary spending, increasing fiscal input in weak links and key areas of economic and social development.
China’s government ratio of debt to GDP was about 50 percent in 2022, a relatively low level by global standards, experts said.
Observers said that China’s general fiscal system is stable and sustainable, which will also continue to support the steady and long-term development of the economy.
China’s fiscal stability and health were global front runners, as the government put an emphasis on promoting the high-quality development of the Chinese economy. Fiscal policy still offers enough leeway and adjustability, the Xinhua report said, citing He Daixin, a researcher with the Chinese Academy of Social Sciences.
Chinese experts also urged the country to keep a watchful eye on the US over its debt problem.
The US government narrowly avoided what would have been its first-ever default on Saturday by a bill that suspends the US government’s $31.4 trillion debt ceiling until January 2025 though some analysts said this is a time bomb.
“China can well handle its problems, but what we should be alert to is the US’ debt problems. Since the US never seeks to solve its problems at home, it will pass risks on to the world, through abusing the power of dollar hegemony,” Cong said.
(Global Times)
