Local debt exceeded 40 trillion yuan
Since 2023, local debt resolution has become a key priority for China's financial industry, and the next 1-2 years will be the peak period for debt resolution.
In October this year, China's outstanding local explicit debt crossed the 40 trillion yuan mark, reaching 401 trillion yuan, a record high.
Explicit local debts are liabilities with local ** as the main body of debt, and the law clearly stipulates that local financial funds are used to repay principal and interest, and the substantial increase in the balance in the past one or two months is mainly related to the replacement of local implicit debts.
When it comes to hidden liabilities, people's reaction tends to be municipal bonds;In fact, the implicit liabilities of ** are not only municipal bonds, but also include other types of debts, and the total explicit liabilities of ** where there is no realisation here are not less than 401 trillion yuan, and there are tens of trillions of yuan.
Of course, not all local ** debts (hidden debts) need to be resolved with great efforts, especially in tax-underdeveloped areas, where there is a certain amount of hidden debt pressure.
In the last two months, a large number of special refinancing bonds have been issued to deal with implicit debt37 trillion yuan, making the local explicit debt more than 40 trillion yuan.
What is a Special Refinancing Bond?The key words are:"Refinancing"with"Special"。
Refinancing"Refers to the fact that borrowed money is not used for investment or consumption, but is used to pay off existing debts. For example, if you borrowed $1 million a year ago and now it's coming due in a month, and then you borrow another $1 million to pay off your upcoming debt, the new $1 million borrowed is refinancing debt.
Normal refinancing debt is used to repay debt that is about to mature or has matured'Special'of refinancing debts are debts that have not yet matured, in fact existing municipal bonds and other implicit debts.
Local explicit liabilities replace implicit liabilities, there will be no change in the scale of debt, but a different name, it belongs to the form of debt in the fiscal policy, for the function of the Ministry of Finance, the use of funds is the existing stock of funds in the society, it will not increase the base money m0.
* Banks may be concerned that fiscal policy alone will not be able to resolve debt risks in some of the most affected regions, and are therefore prepared to step in to help resolve the issue.
Recently, Pan Gongsheng, governor of the central bank, said in public that the central bank will play a greater role in preventing and resolving local debt risks. In more than 100 words, Governor Pan mentions at least three ways to resolve debts.
The first is the debt rollover.
The People's Bank of China will work with relevant departments to guide financial institutions to continuously resolve local debt risks in accordance with the principles of compliance with laws and regulations and consultation on an equal footing.
Is it hard to understand what you're talking about?It's not complicated, it's just a matter of waiting until the bank fails.
Commercial banks are the main creditors of the urban investment companies, which are managed by the central bank (and the State Administration of Financial Supervision), and as the competent authorities, they should guide the subordinate units and local administrative departments to negotiate according to the final settlement and payment of the urban investment companies, postpone the debts that are about to mature, reduce the pressure of debt repayment, and focus on the maturity of debts.
Some locals have already started talking to banks about an extension.
For example, at the end of last year, Zunyi Road Bridge, the largest urban investment company in Zunyi, signed a 20-year supplementary agreement of 15.6 billion yuan with a number of banks to continue debts. It is estimated that the bank that lends money is either Zunyi City Bank or Agricultural and Industrial Bank of China, the major shareholder is the local **, and the money lent by the city investment is also given to the **, so it is not difficult to negotiate the extension, and the actual controller of both parties is the local **.
The main purpose of the central bank is to facilitate the cross-regional operation between banks and local urban investment companies, and the debt rollover, the large branches of the State Bank are not necessarily willing to give face to the local urban investment companies, and people have their own assessment pressure, which has to rely on the coordination of higher departments.
Secondly, the bank"Throwing money around"。
Provide emergency liquidity support to regions with relatively heavy debt burdens, where necessary.
The second action is the main one and is part of the monetary policy, which is to increase the amount of base money (m0) in the market.
Of course, the ** bank does not have the right to act directly as a creditor of the local **, but it can act as a creditor mainly by lending to the three major promotion banks, which in turn act as intermediaries to lend to the local ** at extremely low interest rates. In this way, some of the creditors of the local government are no longer market entities, but banks.
The central bank is responsible for issuing money and borrowing money at the same time"Printing money"When the amount of base money in the market expands, the multiplier effect of the currency will increase the balance m1 and m2, which is why I call the second method of debt cancellation"Throw money"。So I call the second method of debt cancellation"Throw money"。
When Pan Gongsheng raised this point, he was more cautious and used three words:"When necessary"。It can be interpreted that the central bank is reluctant to use this trick, and only in emergency situations, it is not used"Throw money"This means that this tactic will be used only when the heaviest debt burden in some regions cannot be resolved.
Last year, nearly 27 billion yuan of new M2 was added, compared with European and American countries, China's monetary policy"Pumping"The policy has always been biased towards expansion, and then, in order to resolve local debt,"Throw money"The amount of currency will be more abundant, which will have an impact on the stability of the RMB exchange rate.
Third, the divestment of the financing function.
Support local governments to gradually divest the public financing functions of financing platforms through mergers and acquisitions, restructuring, asset injection, etc.
The third step is a long-term mechanism, that is, to prevent the recurrence of local hidden debts in the future.
The ultimate borrower of hidden liabilities such as urban investment bonds is actually the local government, and the urban investment company is regarded as the investment and financing platform of the local government, playing the role of a channel.
It's easier said than done, because urban investment companies no longer assume the function of financing for the first place, and have become market-oriented companies, because the main purpose of their establishment and existence is to finance the local government, and the significance of the existence of the stripped function is very small.
In addition, most of the projects developed by the URA are unprofitable utility projects that are not supported by ** and are not very attractive to market funds. Therefore, market-oriented reforms will not be easy.
The author believes that the key to abolishing the financing function of the financing platform lies in changing the economic development model. The establishment of urban investment companies is investment and financing, China mainly relies on foreign trade and investment to drive economic development, not all places can do foreign trade, investment has become the most direct, most effective, easiest way to boost GDP.
When the way to promote economic development is gradually transformed into consumption, there is no need for excessive investment in local debt, and there is no need for the financing platform to exist.
The above is purely a personal point of view, welcome to follow, like, your support is the best incentive for originality!