The Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to run up this year, the official Xinhua News Agency said late Saturday. That would be on top of 15.4 trillion yuan on debt owed by local governments as of the end of 2014, Xinhua said.
That works out to about $2.5 trillion in total local debt across the country. There’s no word on how the NPC, or any other part of the central government, intends to enforce that limit. No more fudging the economic data by the locals, perhaps? That’s where it would have to begin. But then what? Fire the local government employees—or better, enroll them in one of Xi’s reeducation programs? Terminate local services? Raise taxes? Some more?
But there are loopholes.
The caps don’t include indirect liabilities, which officials said totaled 8.6 trillion yuan (roughly $1.3 trillion), according to Xinhua.
In addition, the central government has expanded a local-debt refinancing program that allows local governments to swap their high-interest debt for low interest central government debt. Don’t ask who sets the central government’s bond rates. Do think, though, about the financial liability being laid off onto Chinese “taxpayers” across the country from those locals.
Separately, lawmakers will remove a 75% cap on banks’ loan-to-deposit ratios on Oct 1, Xinhua said on Saturday.
Boy, howdy, are there loopholes.