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13 Mar 2015
Chinat releases details on debt restructuring - DB
FXStreet (Bali) - Zhiwei Zhang, Ph.D, Chief Economist for China at Deutsche Bank, elaborates on the recent releases by the Chinese government on its debt restructuring plans.
Key Quotes
"The Ministry of Finance released some information about the RMB 1trn local government debt restructuring on its website this evening. The local governments are allowed to issue bonds of RMB 1trn. The funds raised can only be used to repay the principal of local government debt that the National Audit office (NAO) identified in its 2013 audit report as "debt the government is responsible to repay". The NAO identified about RMB 1.86trn of such local government debt will mature in 2015. This issuance of 1trn bond helps to cover 53.8% of the identified local government debt maturing in 2015."
"This is a first step by the central government to resolve the local government debt issue. We expect more debt restructuring will take place in the next few years, so that the term structure of debt gets extended and interest rates lowered."
"The debt restructuring itself does not lead to new liquidity injection. This action helps to address the repayment for stock of debt already identified by the NAO as "debt the government is responsible to repay". We are not concerned about this part of debt as the central and local governments already agreed that this part of debt should be covered by fiscal authority."
"We are more concerned about debt that local governments borrowed but not identified by NAO as "debt the government is responsible to repay". We are also concerned about the flow of new debt, which is relevant to economic growth in 2015. The debt restructuring initiative does not address these issues, hence we remain concerned about the local government debt issue as a threat to the economy."
Key Quotes
"The Ministry of Finance released some information about the RMB 1trn local government debt restructuring on its website this evening. The local governments are allowed to issue bonds of RMB 1trn. The funds raised can only be used to repay the principal of local government debt that the National Audit office (NAO) identified in its 2013 audit report as "debt the government is responsible to repay". The NAO identified about RMB 1.86trn of such local government debt will mature in 2015. This issuance of 1trn bond helps to cover 53.8% of the identified local government debt maturing in 2015."
"This is a first step by the central government to resolve the local government debt issue. We expect more debt restructuring will take place in the next few years, so that the term structure of debt gets extended and interest rates lowered."
"The debt restructuring itself does not lead to new liquidity injection. This action helps to address the repayment for stock of debt already identified by the NAO as "debt the government is responsible to repay". We are not concerned about this part of debt as the central and local governments already agreed that this part of debt should be covered by fiscal authority."
"We are more concerned about debt that local governments borrowed but not identified by NAO as "debt the government is responsible to repay". We are also concerned about the flow of new debt, which is relevant to economic growth in 2015. The debt restructuring initiative does not address these issues, hence we remain concerned about the local government debt issue as a threat to the economy."