China’s financial regulators held a meeting on Friday to address the issue of local debt risks and coordinate support to resolve them, according to an official readout on Sunday. This meeting also marked the gathering of a new set of financial policymakers as part of China’s regulatory system overhaul this year.
The weak financial situation of local governments has hindered the central government from providing fiscal support to the economy, as highlighted by analysts from the Rhodium Group. Experts have pointed out that falling land sales resulting from the property market slowdown have further impacted local government revenues.
Amid an overall slowdown in growth and disappointing economic data, China has maintained a cautious approach to stimulus, prioritizing the prevention of financial risks. S&P Global Ratings analysts stated that the ongoing property downturn and the impact of COVID-19 restrictions last year have strained the finances of many local governments, widening the gap between prosperous coastal provinces and poorer inland regions.
Investors have become increasingly concerned about the ability of some governments to rescue their debt-raising vehicles. This sentiment has been fueled by the challenging economic environment and uncertainties surrounding local governments’ financial capabilities.
The meeting held on Friday showcased the presence of new financial policymakers in China’s regulatory system following its overhaul. Attendees included representatives from major state-owned banks, the Shanghai and Shenzhen stock exchanges, and the Central Financial Commission’s administrative office. The readout did not provide specific details regarding the remarks made by the central bank’s new head and party secretary Pan Gongsheng, as well as the deputy leaders of the National Administration of Financial Regulation and China Securities Regulatory Commission.
This meeting signifies China’s commitment to addressing local debt risks and coordinating financial support to mitigate their impact. As the country continues to navigate economic challenges, the resolution of these risks will play a crucial role in stabilizing the financial system and supporting sustainable growth.