2014-06-26

Overdue Government Debts A Growing Concern

The issue with local borrowing is that many cities do not have debt management/warning systems, many cities are borrowing in order to repay old debt, and local governments are violating regulations when borrowing and spending debt. Another issue is whether the muni bond system comes online before the land finance system breaks down. Most cities will continue to rely on the local financing platform, but some of this borrowing uses land sale revenue as collateral.

地方债务现“逾期未还” 违约动机渐强
The latest audit report shows that local debt default has occurred, although the default rate is still unknown, but this phenomenon is not a good sign. Although the overall debt is still controllable, but the establishment of sustained-release mechanism, to find a solution is desperately needed.

June 24, a Chinese auditor general Liu Jiayi audit report on the Standing Committee of National People's Congress submitted show that in the end of June 2013 to March 2014, at the end, the focus of the audit 9 Sheng Benji old debt by the new larger amounts. By the end of June 2013 to the end of 2014 3 9 Sheng Benji and nine first municipal government borrow new debt to repay maturing debt 57.931 billion yuan, but there are still 821 million yuan overdue. This means that the breach has occurred.

Audit report shows that, at present, all kinds of government debt management by the Ministry of Finance are responsible for different business divisions, yet unified centralized management, offshore renminbi bond issuance and other systems are not perfect, some places do not regulate the use of debt and borrowing. 9 Sheng Benji and nine first municipal government debt grew 3.79% balance audit.
But the good news is that debt dropped seven percentage points over the first six months of 2013 the average growth rate of nine city level due to the 2013 land transfer revenue growth, the debt burden has been reduced.

December 2013 issue of the six major economies in the Central Economic Work Conference pointed out, the local government debt ranked second. In 2014 the government announced the launch of a pilot program that allows the total 10 provinces and cities in issue was 109.2 billion yuan in local government bonds.

Zhu Haibin, chief China economist at JP Morgan noted that although local government bonds is a welcome initiative, but the actual implementation is very difficult. The pilot's success depends on the revenue and expenditure transparency, strict local government budget constraints and objective risk assessment and risk-based pricing - all of which involve a wider range of structural reforms.

Debt situation is not optimistic

Liu Jiayi submit audit reports show that in 2014, from the audit situation, the Ministry of Finance and other relevant departments and local debt statistics reinforce the reconciliation of work and risk analysis and early warning, local government debt growth has slowed. But the problems have to throw three points: First, government debt management system is not perfect. Audit nine Sheng Benji and nine city level, the two did not develop a comprehensive management system for government debt, 9 did not develop government debt risk warning system; Second Sheng Benji old debt by the new larger amounts ; three individual debt borrowing and the use of local irregularities. The audit found that, since the end of June 2013, four city level irregularities or non-compliance by the government-guaranteed mortgage financing 15.7 billion yuan, 10.862 billion yuan in violation of the contract will be debt capital for real estate development, capital projects or other construction projects . In addition, four provincial city level through non-public new ways of financing instruments, such as private debt borrowing 6.9 billion yuan.
Although the pilot has commenced issuance of local autonomy, but the effect may be limited in the short term.

Zhu Haibin noted that the amount of local government bonds issued by the central government allocated 400 billion yuan quota allocated from the 2014 central government to local governments set up by the. The pilot and past practice is different. In the past, the Ministry of Finance and representatives of local governments to issue bonds to repay; Now, the local government will be solely responsible for the issuance and repayment of their debt. Bonds will be extended to a maximum period of 7 years 10 years (5,7,10-year bond ratio is 4:3:3), must be bond rating, rather than to review from time to comment.

"This action is a step in the action has encouraged local governments to solve the debt problem towards which the local government has opened a new financing channel." Said Zhu Haibin, to replace the local government bond financing platform to clear responsibility Alternative implied, and the requirements for the bond rating will improve financial transparency, and promote local government fiscal discipline. Moreover, the extension of maturities would reduce the risk of local government debt maturity mismatch.

But from a practical effect, there are many problems to be solved. In the pilot phase, the small size of local government bonds, and the central government is likely to follow the quota system in order to avoid excessive local government borrowing. For example, a pilot program in 2014, most provinces issuance quota is insufficient to cover even the interest on loans. In the near term, expect local government bonds and other financing will be (including corporate bonds - also known as the City investment bonds) coexist together to meet the financing needs of local governments. Government will continue to distinguish stock issues and traffic issues, which means avoiding the existing local government debt default motive remains strong.

Debt-release mechanisms need to be improved

International analyst Yan Wentao long been concerned about the integrity of local debt risk, he pointed out that the risk of local bonds feedback out of the need to be vigilant. In the background of the current slowdown in revenue, expenditure will further increase the rigidity of local government debt pressure this year. Land real estate market boom down, have a greater impact on local government financing, the whole, this effect is also divided into two categories, one is the land market downturn for local financial impact, without regard to the central transfer payments , where 52% of income to rely on land and real estate to support. Second is the impact on the balance sheet platform, the land market downturn could undermine platform enterprise's balance sheet, while the majority of companies rely on this platform to obtain bank loans secured by land or get some credit collection. In this case, the land may be further diminished reserve credit collection effect.

"General local government funds to repay the debt in addition to land, as well as some of their own cash flow, but now the situation is the fact that as of 2012 the national average to land revenue source for the repayment of part of the debt which accounted for 37.23, We have accounted for all the provinces, the dependence on the land transfer to sort out and found some provinces the proportion of land more than 50% to 66% of the highest in Zhejiang. "Wentao Yan pointed out that this description is a very dangerous signal. dependence on these areas of land and real estate market downside is very high, especially in the current downward trend in the real estate market land more obvious cases, the repayment structure will be a great risk, debt repayment over a single centralized structure will further increase local debt exposure in these areas.

Yan Wentao said that under the new financing environment, I believe that the future of the local bond market debt will be more abundant species, in addition to the previous city to vote bonds outside, but also have some local debt, project revenue bonds, special bonds shed change, sustainable debt specific business process platform also found that many companies are willing to do this kind of perpetual debt.

Bonds species diversity, while bond issuers will be more diverse, in addition to the previous platform enterprise, and some local governments, state-owned holding enterprises volatile shantytowns special bond, there are some items corresponding debt The SPV has set up a number of such projects the company.

He believes that although the peel is a function of local government financing platform for the main direction of the company's future development, but is more difficult to achieve in the short term, financing platform will continue to be the subject of future major debt, but the body and in the financing of local government debt in the future financing will gradually diversified, local bonds and project bonds will become an important complement to the issue of local debt, although it is supplemented believe the future of this step is to establish a substantial debt financing mechanism for local governments to government bonds as the main future China will establish a local debt-led local debt issuance system.

Zhu Haibin hope Budget Law Amendment (budget law currently prohibits local governments to borrow from banks or issue bonds directly) can be completed as soon as possible, which will officially introduce China to pave the way local government bonds.

No comments:

Post a Comment