The frequency of news reports on local government debt balances is indeed quite surprising. According to reports, the balance of local government debt is already close to 40 trillion yuan, which is an unimaginable figure. Among them, the hidden debt risk of local governments has attracted widespread attention, partly due to the large maturity scale and the increase in the scale of issuance of ordinary refinancing bonds. Guangdong, Shandong and Sichuan provinces ranked first in the total issuance of local government bonds in the country, among which Guangdong ranked first, accounting for 27.41%. At the same time, in January this year, the scale of local bond issuance fell by 40.26% year-on-year, the issuance of new bonds decreased by 71.98% compared with the same period last year, and the issuance of refinancing bonds increased by nearly 12 times compared with the same period last year.
In order to deal with the problem of local government debt, the Ministry of Finance has issued part of the new local government debt quota in 2024 in advance, which may exceed 27 trillion yuan, including 228 trillion yuan of new special bonds and 432 billion yuan of new general bonds. In addition, the Standing Committee of the National People's Congress has authorized the State Council to issue in advance the new local government debt limit for the next year. The scale of local bond issuance has reached 137 trillion yuan, of which the scale of special refinancing bonds has exceeded 100 billion yuan. It is expected that the early approval quota in 2024 will be issued in November and December, and the special bonds will be mainly invested in 11 major areas such as transportation infrastructure, energy, and affordable housing projects, and the region may continue to tilt towards the eastern regions with better financial conditions.
Although the risk of local government debt is generally controllable, there are still structural risks, including macro leverage ratio, local government implicit debt, uneven distribution of public debt, and mutual spillover of fiscal and financial risks. Therefore, it is necessary to control debt interest rates, give full play to the role of the central government and the commercial banking system, and large-scale debt swaps and debt restructuring to mitigate risks. At the same time, tax reform and mixed-ownership reform of state-owned enterprises will also help solve the problem of local government debt.
In short, we must attach great importance to the problem of local government debt, and we must fundamentally find ways to solve the problem of local government debt, otherwise it will have a great impact on the country's macroeconomic stability.