China needs Detroit-style bankruptcy as debt problems remain

25 Dec, 2017 9:27 am

BEIJING (Reuters) – China needs to let local governments take responsibility for their finances, including allowing bankruptcies, as part of an effort to defuse their debt risks, a central bank official wrote on Monday.

Central government control of the scale of local government bonds should be eliminated, while responsibility to issue and repay bonds should be held by the city or county that will actually use the funds, Xu Zhong, head of the People’s Bank of China’s research bureau, wrote in a an editorial on the financial news website Yicai.

“Eliminate central government control on the scale of local government bond issues, expand the scale of local government debt issues,” Xu wrote.

“Whether (bonds) can be issued, and at what price, must be examined and screened by the financial markets. There does not need to be worry about local governments chaotically issuing debt.”


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