地方政府债务风险可控

China's banking regulator said earlier last week that the country will boost the cleanup of billions of yuan in local government debt in 2012.

Jia Kang, Director of the Institute of Research at the Ministry of Finance, says in two years, nearly 50 percent of the loans made to local government financing vehicles must be paid off.

China's banks had 9.1 trillion yuan in outstanding loans issued to local government financing vehicles as of September 30th, 2011. The country's chief audit office estimated local government debt at 10.7-trillion yuan at the end of 2010, the equivalent of 27 percent of China's GDP.

But speaking to reporters following the opening of this year's session of the Chinese People's Political Consultative Conference in Beijing, CPPCC member Jia Kang said the risks of local government debt were controllable.

"As a whole, the risks are within the safety zone. What we need to focus on are some projects and some areas. There are some low quality debts for some projects in some areas. Those are the focus of our monitoring."

Some analysts attribute heavy local government debt burdens to the heavy reliance on land sales to support GDP growth. To change this trend, World Bank President Robert Zoellick has suggested that China reform its fiscal system to address the problem.

"We all know there have been a lot of disputes in China over land. And this is often because local governments have expenditure responsibilities, but they don't have revenue sources. So if you move towards a revenue system that matches resources with expenditure responsibilities, you avoid some of the tensions that are built in the system, and you can benefit all the average people in China."

Jia Kang agrees with Zoellick's advice to reform the fiscal system and suggests that in reducing costs and allowing local governments to have more resources, provinces should have direct fiscal control over counties.

China currently has five levels of government-the central government, provincial level, city level, county level, and village or town level.

Jia also says local governments should issue more bonds as a better alternative to the heavy reliance on proceeds from land sales to generate revenue.

"Local governments' financing systems should be legalized. As we have seen, local autonomy has allowed them to issue bonds through a pilot program in recent years. 200 billion yuan of local government bonds are issued each year, and they may reach a higher level this year."

Jia Kang also recommends further developing local governments' taxation system.

China has already introduced tax reforms for natural resources and started a pilot program for property tax last year in Shanghai and Chongqing. All of the taxes can provide financial support to local governments.

For CRI, this is Ding Lulu.