THE 34 percent rise in China’s local government debt from mid-2013 to end-2014 is significant, but major reforms to control higher leverage, to monitor finances better and facilitate more sustainable sources of revenue, will mitigate financing costs and reduce risks associated with the debt, Fitch Ratings said Tuesday.

    Three factors are likely to have driven the high level of growth, Fitch said. First, the slump in land sales through 2014 most probably contributed to greater debt accumulation to finance infrastructure projects. Land sales by local governments grew only 3.3 percent in 2014, and slumped by 38 percent over the first seven months of 2015. Second, more stringent classification criteria of local government debt means that the authorities are likely to be factoring in more contingent liabilities under the total local government debt stock. Third, the broader macroeconomic slowdown has contributed to lower fiscal revenue growth.

    The trends that resulted in the rising debt load in 2014 are likely to continue in 2015. Fitch maintained that the debt load is still manageable despite the rapid rise in local government debt in 2014 and the likely further increase this year.

    The authorities have announced a number of reforms as part of a structural overhaul of local government financing since 2014, which Fitch viewed as positive steps toward greater sustainability and accountability.

    (SD-Agencies)