On November 8, the 12th Meeting of the Standing Committee of the 14th National People’s Congress (NPC) voted to adopt the Resolution of the Standing Committee of the National People’s Congress on Approving <the State Council’s Motion on Submitting for Consideration the Proposal to Increase the Debt Limit of Local Governments to Replace the Stock of Hidden Debt>. The motion proposes to increase the local government debt limit by 6 trillion yuan to replace the stock of hidden debt on the basis of the compaction of local main responsibility. In this regard, Prof. ZHONG Ninghua, vice dean of SEM and head of the Department of Economics and Finance of Tongji University, was interviewed by Shanghai TV’s “News Nightline” to explain the latest debt relief measures. The following is the content of the interview.

Q1: Minister of Finance Mr. LAN Foan compared the debt resolution policy to a “timely rain”, how strong is this timely rain? What is the significance of the change from emergency disposal to proactive resolution of debt resolution measures for economic development?

ZHONG Ninghua: The strength of this policy is very great. In the past few years, local governments have focused their attention on preventing and resolving local debt risks. Taking the initiative to pay off the debt will enable local governments to remove their burdens, lighten their loads, and free up the resources that were originally constrained by the pressure to resolve debt, and invest more in developing the economy.

Q2: Minister of Finance Mr. LAN Foan said in his explanation to the Standing Committee of the National People’s Congress (NPC) on the motion “Requesting consideration of increasing the local government debt limit and replacing the stock of hidden debt” that increasing the local government debt limit and replacing the stock of hidden debt will not increase the overall burden of government debt, nor change the responsibility of local governments in repaying the debt.

ZHONG Ninghua: This program is essentially to increase local government debt and replace the stock of hidden debt, and does not change the local debt-servicing responsibility. This time, the debt is transformed from the emergency disposal in the past to the current active debt, and from the “point-like demining” to the “overall de-risking”, which indicates that more attention has been paid to the systemic and long-term nature of the program.

Q3: Considering the spread between the hidden debt and statutory government debt, the debt resolution is expected to save about RMB 400 billion in interest expenses and promote the resolution of various types of local triangular debt problems.

ZHONG Ninghua: If the urban investment platform owes money to banks, or owes money to upstream and downstream, through the swap, the urban investment will have the money to pay off these debts, thus reducing the risk of bad debts to banks and other financial institutions, and also boosting the confidence of the relevant business entities.