Lan Fo'an: The fundamental shift in debt restructuring thinking will directly increase local debt resources by 10 trillion yuan, with an additional 6 trillion yuan local debt quota arranged over 3 years

On the 8th, the Standing Committee of the National People's Congress approved an increase of 6 trillion yuan in the local government debt limit to replace existing hidden debts. At 4 PM, the General Office of the Standing Committee of the National People's Congress held a press conference.

Minister of Finance Lan Fo'an stated at the press conference that the additional 6 trillion yuan local government debt limit will be arranged over three years, with 2 trillion yuan each year from 2024 to 2026 to support local governments in replacing various hidden debts.

Lan Fo'an introduced that starting from 2024, China will allocate 800 billion yuan annually from newly issued local government special bonds for five consecutive years specifically for debt reduction, allowing for a total replacement of hidden debts amounting to 4 trillion yuan. In addition to the 6 trillion yuan debt limit approved by the Standing Committee of the National People's Congress, this directly increases local debt reduction resources by 10 trillion yuan. It was also clarified that the 2 trillion yuan of hidden debts related to shantytown renovation maturing in 2029 and beyond will still be repaid according to the original contracts.

With the synergy of the above three policies, the total amount of hidden debts that local governments need to digest before 2028 will be significantly reduced from 14.3 trillion yuan to 2.3 trillion yuan, with the average annual digestion amount decreasing from 2.86 trillion yuan to 460 billion yuan, less than one-sixth of the original amount, greatly alleviating the pressure of debt reduction.

In addition, Lan Fo'an stated that currently, the relevant tax policies to support the healthy development of the real estate market have been submitted for approval and will be launched soon. The next steps in fiscal policy are being actively planned to strengthen counter-cyclical adjustments.

[16:50] Lan Fo'an: Actively planning the next fiscal policy, strengthening counter-cyclical adjustments

Lan Fo'an stated that on October 12, I mentioned at a press conference that the central government still has considerable room for borrowing and increasing the deficit. We are currently actively planning the next fiscal policy to strengthen counter-cyclical adjustments.

[16:47] Lan Fo'an: Implementing stronger fiscal policies in line with next year's economic and social development goals

Lan Fo'an stated that in line with next year's economic and social development goals, stronger fiscal policies will be implemented. First, actively utilize the available deficit space. Second, expand the scale of special bond issuance, broaden the areas of investment, and increase the proportion used as capital. Third, continue to issue ultra-long-term special government bonds to support major national strategies and the construction of security capabilities in key areas. Fourth, increase support for large-scale equipment updates and expand the variety and scale of consumer goods for trade-ins. Fifth, increase the scale of central government transfers to local governments and strengthen investment guarantees in key areas such as technological innovation and people's livelihoods.

[16:45] Lan Fo'an: Relevant tax policies to support the healthy development of the real estate market have been submitted for approval

At the press conference, Minister of Finance Lan Fo'an introduced that currently, the relevant tax policies to support the healthy development of the real estate market have been submitted for approval and will be launched soon. The work on replacing hidden debts will start soon. The issuance of special government bonds to supplement the core Tier 1 capital of large state-owned commercial banks is also being accelerated. The Ministry of Finance is working with relevant departments to research and formulate policy details to support the recovery of idle stock land, new land reserves, and the acquisition of existing commercial housing for affordable housing purposes, promoting rapid implementation[16:33] Lan Fo'an: The Ministry of Finance will work with relevant departments to maintain a "zero tolerance" high-pressure regulatory stance, discovering, investigating, and holding accountable any new hidden debts.

Minister of Finance Lan Fo'an stated that efforts will focus on three main areas. First, the monitoring scope will be more comprehensive. The Ministry of Finance is working with relevant departments to improve information sharing and regulatory coordination mechanisms, monitoring the debt situation for which local governments are responsible for repayment in a comprehensive manner, conducting dynamic analysis, timely warnings, and risk prevention. Regarding the operational debts of financing platforms, financial management departments have developed policy measures to support the resolution of local debt in accordance with relevant requirements, and we will actively cooperate to ensure the implementation of existing financial support policies.

Second, budget constraints will be stronger. Not adding new hidden debts will be treated as an "iron discipline," continuously strengthening budget management and urging local governments to legally and compliantly construct government investment projects; any government expenditure items and investment projects not included in the budget arrangements are strictly prohibited from being implemented, firmly blocking the avenues for local illegal borrowing.

Third, regulatory accountability will be stricter. Strengthening the collection of clues regarding new hidden debts, timely grasping new methods and variants of illegal borrowing, and promoting regulation from post-event "firefighting" to preemptive "risk prevention." Strictly implementing accountability for local governments' illegal borrowing. At the same time, we will continuously improve local government debt management and accelerate the establishment of a debt system with Chinese characteristics that is compatible with high-quality development.

[16:30] Lan Fo'an: Implementing such a large-scale replacement measure signifies a fundamental shift in our debt resolution approach.

Lan Fo'an stated that currently, some local hidden debts are large in scale and have heavy interest burdens, posing not only a "risk of explosion" but also consuming local available financial resources. In this context, implementing such a large-scale replacement measure signifies a fundamental shift in our debt resolution approach: first, from emergency response in the past to proactive resolution now; second, from point-based risk clearance to overall risk elimination; third, from dual-track management of hidden debts and statutory debts to standardized and transparent management of all debts; fourth, from focusing on risk prevention to balancing risk prevention and promoting development. From the perspective of policy effects, it can achieve a "two birds with one stone" effect. Since the interest rate on statutory debts is significantly lower than that on hidden debts, the replacement will greatly save local interest expenditures.

[16:29] Lan Fo'an: With three policies working together, the total amount of hidden debts that local governments need to digest will be significantly reduced from 14.3 trillion to 2.3 trillion before 2028.

Lan Fo'an introduced that starting from 2024, 800 billion yuan will be allocated annually from newly issued local government special bonds for five consecutive years to supplement the financial resources of government funds, specifically for debt resolution, which can cumulatively replace hidden debts of 4 trillion yuan. In addition to the 6 trillion yuan debt limit approved by the Standing Committee of the National People's Congress, this directly increases local debt resolution resources by 10 trillion yuan. It is also clarified that the hidden debts for shantytown renovation maturing in 2029 and beyond, amounting to 2 trillion yuan, will still be repaid according to the original contract. With these three policies working together, the total amount of hidden debts that local governments need to digest will be significantly reduced from 14.3 trillion yuan to 2.3 trillion yuan before 2028, with the average annual digestion amount reduced from 2.86 trillion yuan to 460 billion yuan, less than one-sixth of the original amount, greatly alleviating the pressure of debt resolutionWe estimate that local governments can completely resolve this issue through their own efforts, and in some areas, it can be done relatively easily.

【16:27】Lan Fo'an: It is estimated that approximately 600 billion yuan can be saved cumulatively over five years after the swap

Minister of Finance Lan Fo'an stated that this swap involves a concentrated arrangement of 8.4 trillion yuan over the past three years, significantly reducing the scale of implicit debts that local governments need to digest in recent years, allowing them to lighten their burdens and start afresh. At the same time, since the statutory debt interest rate is much lower than the implicit debt interest rate, the swap will greatly save local interest expenditures. We estimate that approximately 600 billion yuan can be saved cumulatively over five years.

Minister of Finance Lan Fo'an introduced at the press conference of the 12th meeting of the Standing Committee of the 14th National People's Congress held on November 8 that starting from 2024, China will arrange 800 billion yuan annually from newly issued local government special bonds for five consecutive years, specifically for debt resolution, which can cumulatively replace 4 trillion yuan of implicit debt. In addition to the 6 trillion yuan debt limit approved by the Standing Committee of the National People's Congress this time, local debt resolution resources will be directly increased by 10 trillion yuan. It was also clarified that the implicit debt of 2 trillion yuan for shantytown renovation due in 2029 and beyond will still be repaid according to the original contract.

Lan Fo'an stated that after the policy coordination takes effect, the total amount of implicit debt that local governments need to digest before 2028 will significantly decrease from 14.3 trillion yuan to 2.3 trillion yuan, greatly alleviating the pressure of debt resolution.

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