China has completed a document on measuring "hidden" local government debt, particularly those incurred since 2015, two senior ministry officials told China Daily.
It means the central government will take more stringent measures to prevent the continuing increase of local debt not on official budgets as a way to ward off financial risks, analysts said.
The document urges local governments to check the size of their off-budget debt and evaluate the quality of their debts and assets, said the officials, who declined to be named because they are not authorized to comment on the matter.
There have been media reports saying that some local governments have held meetings to implement the requirements of the document, although they did not reveal the details of the guideline.
The major aim of the document is to find out how much of such debt has been raised in the past three years and to urge local governments to work out risk control plans, according to the two officials.
"Hidden" local government debt is usually raised through non-bond financial channels, which are difficult to keep tabs on or supervise.
The debt is also outside the annual debt quota approved by the country's top legislature.
"The central government has been aware of the potential local government debt risk for a long time, especially for the part that has not yet been recorded," said Qiao Baoyun, head of the academy of public finance and public policy under the Central University of Finance and Economics.
The top-level guiding document showcases the leadership's determination to further rein in debt risks, as off-budget local government debt has the potential to increase, said Qiao.
"It is necessary to check how large the off-budget debt is, (and) then we can know how to manage the risk."
The checks, which already have started in some provinces, are expected to determine the true financing resources of local governments' investment activities.
Illegal cases, once verified, will be reported by the Ministry of Finance. Some cases already have been disclosed on the ministry's website, according to the officials.
The last round of checks on local government debt ended by 2014, leading to a result of 15.7 trillion yuan ($2.3 trillion) of debt outstanding. The central authority required that the debt be swapped through issuing bonds within three years, by 2018.
By the end of last year, 10.9 trillion debt had been swapped, according to the Finance Ministry.
Liu Shangxi, head of the Chinese Academy of Fiscal Sciences, said that it is important to tighten regulations on "hidden" local government debt, which will push the local government officials to take responsibility for their financing activities and make investment more efficient.
Finance Minister Liu Kun recently said in an article that risk management over local government debt should be tightened and measures should be taken to firmly crack down on illegal fundraising.
Some means of financing, including illegal activities in the name of public private partnership projects, government investment funds and government purchases of services, should be banned, said the minister.
According to the Finance Ministry, budgeted local government debt was 16.47 trillion yuan by the end of last year. The debt for the central government was 13.48 trillion yuan. The government debt-to-GDP ratio was 36.2 percent, down from 36.7 percent from 2016.
The debt level is lower than in major, market economy countries and emerging-market economies, and the overall local government debt risk is under control, according to the ministry.
