NDRC Promises Program to Encourage Local Governments to Repay Debts
Beijing has vowed to draft a plan to urge local governments to repay their overdue debts to private companies in a bid to help revitalize dwindling private investment.
The plan, if enacted and enforced, could enhance the confidence of private investors and encourage more funds from the private sector, experts said Thursday.
This plan to address the debt issue is part of a series of measures by the National Development and Reform Commission (NDRC), China's economic planner. It issued a statement Wednesday outlining ways to boost private investment. These include improved access to various sectors, promoting government and private partnerships and repaying debts to private companies.
The government will further open up investment in airports, telecom operations, energy resources exploration, electric power distribution and national defense technology to private investors, the NDRC said.
Experts find the debt repayment significant because it is the first time the NDRC has addressed the issue. Local governments will be urged to make plans to repay their debts in installments to private companies, particularly for procurement and construction projects, the NDRC statement said.
"The repayment plan will largely boost private investor confidence in follow-up investment and, hopefully, stall the trend of a slowdown in private investment," Wang Yukai, a professor with the Chinese Academy of Governance, told Caixin on Thursday.
Private investment growth in the first eight months of this year was only 2.1% year-on-year, much lower than the 8.1% growth in the country's total investment. By the end of 2015, private investment growth was at 10.1%, according the National Bureau of Statistics.
Ye Qing, a taxation professor with Zhongnan University of Economics and Law, said pushing local governments to pay back their debts to private investors will also help preserve what the government calls "social stability."
Last month, a driver of a bank armored car in Liaoning province robbed it of 6 million yuan ($890,000) in cash to pay back family debts. For over a decade, his parents had failed to receive millions of yuan in payments for a government construction project and had to borrow funds from other creditors.
The State Council issued a statement in July urging the Ministry of Finance to join with other government departments to deal with government debt owed to private companies.
Some local governments have been taking action. Shandong province, for instance, said they have urged local governments to pay back more than 61 billion yuan of construction debts by the end of September, accounting for 61% of all debts owed to companies.
Guizhou, Shaanxi, Qinghai and other provinces are also addressing government debt problems in their efforts to boost private investment.
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