China reviews plan to increase local government debt

New debt would go toward replacing hidden debt, the report said, noting that Finance Minister Lan Fo’an spoke at the meeting on the plan.

Lan indicated at a press conference last month that an increase in the local debt limit was in the works. Local authorities in China have historically been responsible for much of public services spending, but have struggled financially as revenue from land sales to developers has dropped.

China has about 50 trillion yuan to 60 trillion yuan (about $7 trillion to $8.45 trillion) in outstanding hidden debt, according to Ting Lu, chief China economist at Nomura.

In a report Friday he estimated about 10 trillion yuan in additional debt quota could be approved over the next few years to swap out part of the hidden debt.

“Beijing might eventually raise the debt swap to RMB15trn, if China’s economy faces even bigger challenges,” Lu said.

The standing committee of China’s National People’s Congress is meeting this week and widely expected to approve further fiscal support for the country’s slowing economy. Committee Chair Zhao Leji is leading the gathering, scheduled to wrap up Friday.