Local govts not major investors in 'One Belt, One Road' projects
The new anticipated round of investment spurred by the "One Belt, One Road" initiative will not lead to a major increase in local government debt if local authorities ensure financing transparency, a World Bank senior economist said on Monday.
The government has made a lot of efforts to put local government debt on a sustainable footing and there will be a lot of infrastructure investments that will require debt instruments to get financing in the future, Karlis Smits, a senior economist at the World Bank, said in Beijing after the launch of its latest East Asia Pacific Economic Update report.
The policy effort is to make these instruments more transparent therefore the question is not so much about the rising of debt levels, but about proper procedures that are used to raise that debt, Smits said.
China unveiled an action plan in late March that includes key principles, framework and priorities of cooperation to realize the vision of the "One Belt, One Road" initiative proposed by Chinese President Xi Jinping in 2013 to enhance cooperation with countries and regions in Asia, Europe, Africa and beyond.
To carry out the plan, local governments have ramped up efforts to invest in infrastructure construction.
Northwest China's Gansu Province plans to invest 800 billion yuan ($128.83 billion) in the next six years to build roads, railways and airports to facilitate Gansu's transport connectivity with countries along the Belt and Road route, Gansu Daily reported earlier this month.
Analysts expect the "One Belt, One Road" initiative to bring along the fourth round of investment wave in China, following those in 1993, 2003 and 2007.
The investment fueled by the initiative could reach 400 billion yuan in 2015 and pull up China's GDP growth by 0.2 percentage points, China News Services reported on March 29.
Questions have been raised by experts about how the investment will be financed and whether this new round of investment will lead to the accumulation of local government debt.
The key to preventing financial risks such as the piling up of local government debt is in reforming the financing methods and efforts have been made in this regard such as introducing public-private partnership financing, Guan Qingyou, an economist with Minsheng Securities in Beijing, told the Global Times on Monday.
Local governments are facing less repayment pressure as a result of the recent local government debt swap plan, Guan said.
In March, the Ministry of Finance announced it would allow local governments to issue 1 trillion yuan of local bonds to replace the maturing high-interest local debt, much of which is in bank and trust loans raised by local government financing vehicles.
Most of the projects to support the "One Belt, One Road" initiative will be carried out in the medium and long terms, and they will not create industrial overcapacity and credit expansion in the short term, Wang Jun, a research fellow at the China Center for International Economic Exchanges, a Beijing-based think tank, told the Global Times on Monday.
Most investments to support the various projects in the initiative are actually outbound investments from State-owned enterprises and private businesses rather than local governments being the major investors, Wang said.
