China names new financial leader as concerns loom over government revenue and debt

Lan Feng was appointed as head of China’s Ministry of Finance as the government struggles to reduce local government debt and increase fiscal revenue to put economic growth back on a sustainable path.

Lan, 61, took over the position from Liu Kun, according to a statement released by the ministry on Friday. He is also prepared to replace Liu as finance minister.Mr. Liu held both positions. From 2018 And he is set to turn 67 later this year, far beyond the normal retirement age of 65 for ministerial civil servants.

Prior to his appointment, Mr. Lan served as party chairman of Shanxi province and served in the finance department at local and central levels.

China’s economy is showing signs of recovery after a recession Numerous support policies was announced in July, but the worsening real estate crisis is weighing on the revival, as local governments that relied on land sales revenue are saddled with debt.

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Zhang Zhiwei, chief economist at Pinpoint Asset Management, said the Finance Ministry appointments were a “positive development” for the economy and “suggests that the policy stance may become more expansionary”, but it will take time. He said it could cost.

“With the end of the current fiscal year already approaching, a policy change may not happen immediately. Nevertheless, this move raises the possibility of a change in fiscal policy next year, which will be positive for the economy.” .”

Louis Cuis, chief economist for Asia Pacific at Standard & Poor’s Global Ratings, said fiscal and monetary easing remains limited as central governments focus on reining in leverage and financial risks. said.

“On the fiscal front, China has traditionally relied on local governments to shoulder most of the burden of stimulus,” Quys said in a Sept. 24 memo, adding, “Currently, many local governments “Funds are tight, and the Chinese government is reluctant to pursue additional policies.” Fiscal spending led by local governments.

“The central government could take on more of the burden, but it remains reluctant.”


Chinese investors sell overseas real estate

Chinese investors sell overseas real estate

Concerns about the risk of default by local government financing vehicles (LGFVs) continue to exist due to weak revenue growth prospects in some of China’s most indebted regions.

LGFVs are hybrid public-corporate entities created to circumvent municipal borrowing restrictions. They have skyrocketed since the 2008 global financial crisis.

The International Monetary Fund estimates that China’s total LGFV debt has soared to a record 66 trillion yuan (US$9 trillion) this year, more than double the 30.7 trillion yuan reported in 2017. .

LGFV is also often associated with: “Hidden Debt”, off-balance sheet borrowings from local governments with substantially implied guarantees. The central government has prohibited local governments from selling any more hidden debt and has asked local governments to eliminate the problem by 2028.

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There are no official figures for the total amount outstanding, but Wang Tao, chief China economist at UBS, estimates it could be around 43 trillion yuan by 2022.

China’s fiscal revenues rose by 10% in the January-August period, but by 11.5% in the January-July period, despite signs of stabilization following announced policy support. % growth slowed down.

According to estimates by Guangfa Securities, general fiscal revenue in August was 1.25 billion yuan, down 4.6% from a year earlier.

Ping An Securities said in a note dated September 17, “Pressure on the balance of government funds remains high, and efforts are being made to resolve local government debt risks,” adding, “The introduction of follow-up finance is necessary and urgent.” ”. policy. “

Additional reporting by Ji Siqi

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