An employee counts yuan banknotes at a bank in Huaibei, Anhui province June 22, 2010.[Photo/Agencies]

China will speedup the issuance of local government debt in the second half of the year, but the overall risks are under control, government officials and industry experts said.

"The issuance scale in the first six months is lower than the same period of last year, and the cost has been rising due to the increasingly tightened liquidity," said Wang Kebing, deputy head of the budget department at the Ministry of Finance.

Yang Xiaojing, an analyst specializing in local government debt with China Chengxin International, estimated a total of 455 billion yuan ($67.02 billion) newly added local government bonds were issued in the first half of the year, which was only around 28 percent of the government's target for 2017(1.63 trillion yuan), indicating that more bonds will be issued in the following six months.

Tang Linmin, a researcher with the Academy of Social Sciences, held a similar viewpoint.

"The scale and speed of local government debt issuance are both expected to rise in the second half of the year," Tang was cited by the Economic Information Daily as saying.

The central government has accelerated debt-for-bond swaps for local governments to ease their financial burden. The target for such swaps is no less than 3 trillion yuan for 2017, but only 1.2 trillion yuan were issued in the first six months of this year.

Despite the expanded scale of local government debt in the second half year, the overall risks are under control, thanks to improved mechanisms in quota and budget management, risk disposal and regular supervision.

To fend off potential risks, the Chinese government has established a local government debt monitoring system, and has strengthened accountability over irregular borrowing. "We have seen most provincial governments set up leading teams to manage and regulate local government debt," added Wang Kebing.

China's newly revised Budget Law clearly stipulates that local government debt should be publicly issued through a national quota-based mechanism, and various local financing platforms backed by the local authority should not issue local government debt.

According to the latest report by the National Audit Office on 16 provinces' cities and counties, the average government debt ratio in these regions reached 70 percent, which was much lower than the government debt ratio of other major economies.

The average government debt ratio is the debt balance to be paid with public funds by government, divided by the comprehensive financial resources of the same level of government.

JP Morgan China economist Zhu Haibin said China has paid attention to improving the transparency of local government debt management and strengthened supervision.

"Since 2015, following the standards to regulate financing channels for local governments, local government bonds have become the major channel, and the management of borrowing, lending and repayment has been increasingly standardized," said Wei Qiang, director-general of the General Office at the National Audit Office.

Zhuang Jian, senior economist at the Asian Development Bank, said the overall risk of China's local government debt is low, but it is important to pay attention to some local governments with weak financial strength.

Data from the Ministry of Finance showed that the quota of local government debt in 2017 was around 18.8 trillion yuan, while that in 2016 was 17.2 trillion yuan and 16 trillion yuan in 2015. Last year, China's local government debt balance was 15.3 trillion yuan, decreasing 4.3 percent year-on-year.

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