Ministry of Finance： News of local government debt quota management department

Opinions on the implementation of quota management of local government debt
FB [2015] No.225

People’s governments of all provinces, autonomous regions, municipalities directly under the Central Government and cities under separate state planning:

In order to further standardize the management of local government debt, give full play to the positive role of government debt in promoting economic and social development, and prevent and resolve financial risks, according to the budget law, the State Council’s Opinions on Strengthening the Management of Local Government Debt (Guo Fa [2014] No.43) and the relevant requirements of the State Council’s proposal on submitting for deliberation and approval of the local government debt limit in 2015, with the consent of the State Council, we hereby put forward the following implementation opinions on the management of local government debt limit:

First, strengthen the management of local government debt limit.

(1) Reasonably determine the total debt limit of local governments. The local government debt balance shall be subject to quota management. The annual local government debt limit is equal to the local government debt limit of the previous year plus the new debt limit of the current year (or minus the reduced debt limit of the current year), which is divided into general debt limit and special debt limit.

The total local government debt limit is determined by the State Council according to the national macroeconomic situation and other factors, and reported to the National People’s Congress for approval. In the implementation of the annual budget, if the new limit of local government debt needs to be adjusted under the following special circumstances, the State Council will submit it to the National People’s Congress Standing Committee (NPCSC) for approval: when the downward pressure on the economy is great and a proactive fiscal policy needs to be implemented, the new debt limit of the year will be appropriately expanded; When the economic situation improves and it is necessary to implement a prudent fiscal policy or a moderately tight fiscal policy, the new debt limit in the current year will be appropriately reduced or the debt limit will be reasonably reduced on the basis of the previous year’s debt limit.

(2) Distribute the debt limits of local governments by region step by step. The government debt limits of all provinces, autonomous regions and municipalities directly under the Central Government shall be put forward by the Ministry of Finance within the total limit approved by the National People’s Congress or its Standing Committee, based on factors such as debt risk, financial situation and overall consideration of national macro-control policies and regional construction investment needs, and submitted to the State Council for approval before being issued to provincial financial departments.

The provincial financial department shall, in accordance with the quota issued by the Ministry of Finance, put forward suggestions on the debt arrangement of the local government, and prepare a budget adjustment plan, which shall be approved by the provincial government at the corresponding level; According to the debt risk, financial situation and other factors, and coordinating the local construction investment demand, the government debt limit of the province level and its cities and counties in the current year was put forward, and it was issued to the cities and counties after being approved by the provincial government. If it is really necessary for the municipal and county governments to borrow debts, they shall put forward plans for borrowing and using local government debts in the current year in accordance with the approved limits, include them in the budget adjustment plan, report them to the Standing Committee of the People’s Congress at the corresponding level for approval, report them to the provincial government for the record and borrow them on their behalf.

(3) Borrowing local government debts in strict accordance with the quota. The provincial finance department shall, within the approved local government debt limit, make overall consideration of the external debt lent by the central government, reasonably arrange the variety, structure, term and time of local government bonds, and do a good job in the issuance and payment of government bonds. The central and provincial financial departments report in writing the issuance and payment of local government bonds to the relevant special committees of the people’s congresses at the corresponding levels every six months. If the government debt needs to be included in the follow-up loans of projects under construction borrowed before the local government debt limit is issued in 2015, all localities will adjust their structures within the local government debt limit in 2015. In the future, the follow-up financing needs of projects under construction that need to be included in government debt will be considered as a whole when determining the annual new local government debt limit, and will be borrowed by issuing local government bonds according to law. The new contingent debts of local governments should be strictly limited to the scope of foreign debt lending guaranteed according to law, and bear relevant responsibilities according to the guarantee contract.

(4) Incorporate the classification of local government debts into budget management. Local governments should include all their government debts in the quota and classify them into budget management. Among them, the general debt is included in the general public budget management, and it is mainly repaid by the general public budget income. When the deficit cannot be reduced, the method of borrowing the new and returning the old can be adopted. Special debts are included in the budget management of government funds and repaid through corresponding government funds or special income; Government funds or special income are temporarily difficult to realize. If the land purchased and stored fails to be sold as planned, it can be returned by borrowing new and returning old, and the income will be returned after it is realized.

Two, establish and improve the local government debt risk prevention and control mechanism

(a) a comprehensive assessment and early warning of local government debt risks. Local governments at all levels should fully grasp the assets and liabilities, debt service, financial operation, etc., speed up the establishment of a comprehensive financial reporting system for the government, comprehensively assess the risk situation, track the risk changes, and effectively prevent risks. The central and provincial financial departments should strengthen the supervision of local government debt, timely analyze and evaluate the local government debt risk according to the debt rate, new debt rate, debt repayment rate, overdue debt rate, contingent debt compensation rate and other indicators, and conduct risk early warning for areas with high debt risk.

(2) Pay close attention to establishing a debt risk resolution and emergency response mechanism. The governments of all provinces, autonomous regions and municipalities directly under the Central Government should take overall responsibility for the prevention and control of local government debt risks, establish an incentive and restraint mechanism for debt risk resolution, and comprehensively organize debt risk resolution and emergency response. Local governments at all levels included in the scope of risk early warning should formulate medium-and long-term debt risk mitigation plans and emergency response plans, strictly control the debt increase, and raise funds through multiple channels to digest existing debts by controlling the project scale, reducing expenditures, disposing of assets, and introducing social capital, so as to gradually reduce the debt risk. When it is difficult for city and county governments to repay their debts by themselves, they should start the debt risk emergency response plan and report it in time; The provincial government should strengthen the guidance on the emergency disposal of the debt risk of the city and county governments, and urge them to effectively resolve the debt risk to ensure that regional and systemic risks do not occur.

(3) Improve the local government debt supervision and assessment accountability mechanism. Local governments at all levels should take the initiative to accept the supervision of the people’s congresses at the corresponding levels and the society, and regularly disclose the government debt limit, borrowing, use and repayment to the society. Local governments should follow the principle of marketization and strengthen market constraints in borrowing. The audit department should strengthen the supervision of debt audit according to law, and the financial department should strengthen the monitoring of local governments’ illegal borrowing and debt risks. It is necessary to incorporate government debt management as a hard indicator into the performance appraisal and strengthen the assessment of leading cadres of local governments. The main person in charge of the local government should be the first responsible person, and earnestly do a good job in the prevention and control of government debt risks at the same level. If the local government fails to prevent and resolve the risk of government debt, it should be interviewed and informed, and if necessary, it can be ordered to reduce or suspend the borrowing of new debts. Where the local government illegally borrows or guarantees, it shall be ordered to make corrections, and the relevant personnel shall be held accountable in accordance with the provisions of the budget law.

Third, properly handle the stock debt

(a) earnestly fulfill the responsibility of government debt repayment. For the stock debts of local governments that are included in the budget management after screening, which belong to public welfare projects, the local governments will make overall arrangements for the repayment of budget funds including bond funds, and can dispose of government assets when necessary; Belong to the non-public welfare project debt, by borrowing debt departments and units by reducing budgetary expenditures and other measures to repay, temporarily difficult to reduce the available financial funds in advance, and in the future annual departmental and unit budgets deducted. Cancel the government financing function of financing platform companies, promote the market-oriented transformation and restructuring of financing platform companies with operating income and cash flow, and support them through measures such as government and social capital cooperation (PPP) and government purchase of services.

For the part of local government stock debt borrowed by non-government bonds such as bank loans, the provincial financial department will arrange to issue local government bonds for replacement within the limit after a transition period of about three years. In order to avoid the impact of local competition on the market, the Ministry of Finance will organize and coordinate according to the debt maturity and debt risk, and continue to work with the People’s Bank of China, the China Banking Regulatory Commission and other relevant departments to conduct targeted underwriting and issuance of replacement bonds.

(2) Properly dispose of contingent liabilities according to law. The local government should properly handle the contingent debts that are responsible for the government’s guarantee or may be responsible for certain relief. For contingent debts that really need to be compensated according to law, the local government should incorporate the compensated funds into the budget management, and reserve the right of recourse to the original debt unit and relevant responsible parties according to law; Contingent debts that need to be converted into government debts due to changes in the nature of the original debt repayment funds due to changes in budget management methods shall be converted into government debts after being reported to the provincial government for approval without exceeding the limit; For the contingent debts guaranteed in violation of laws and regulations, the government, the debtor and the creditor shall negotiate together to revise the contract, clarify the responsibilities and terminate the guarantee relationship according to law. Local governments should reduce the quota space vacated by government debt balance through cooperation between government and social capital, and give priority to solving the above-mentioned contingent debt compensation or transformation problems.

All regions and departments should further unify their thinking and understanding, attach great importance to it, strictly implement the provisions of local government debt management, clarify the division of tasks and implement their work responsibilities in light of the actual situation of their regions and departments, actively study and solve new problems, sum up experiences and practices in a timely manner, strengthen the guidance of public opinion, give full play to the positive role of standardizing local government debt management in "stabilizing growth" and "preventing risks", and promote the implementation of various policies and measures in place.

the Ministry of Finance
December 21, 2015