China has adequate fiscal space to absorb local govt debt risks

BEIJING -- China has adequate fiscal headroom to absorb local government contingent liabilities, a recent report by Moody's Investors Service said.

As higher levels of local government off-budget investment financing pose a challenge to China's fiscal position, such debt levels are relatively moderate and can be absorbed over time by the sovereign's balance sheet, said Moody's.

"While local government financing operations raised the general government debt-to-GDP burden to 34 percent in 2014 from a low of 17 percent in 2005, China's debt trend appears to have stabilized, " said Tom Byrne, a Moody's Senior Vice President for the Sovereign Risk Group.

"In addition, the government has an appreciable amount of fiscal space to accommodate such known risks."

Byrne also pointed out that China's fiscal profile is in the top bracket of Moody's global scoring range, based on the country's gross debt burden, total revenue and budgetary interest ratios.

The central government may need to provide additional fiscal resources to local governments to bolster their finances and debt-repayment capacity, said Byrne. < China on Wednesday launched another 1 trillion yuan (163.9 billion U.S. dollars) debt swap deal to relieve local governments' burdens and balance the relationship between debt management and stable growth.

According to China's National Audit Office, local government debt stood at around 10.9 trillion yuan by the end of June 2013.