China is confident it can control local debt, and there is still room for more government borrowing, said the country's new finance minister.
The comments by Mr Xiao Jie came two days after Premier Li Keqiang pledged at the start of the national Parliament's annual meeting on Sunday to build a "firewall" against financial risks, which are a key focus this year for the world's second-largest economy.
The finance ministry itself had warned in a budget report issued at the Parliament meeting that some township-level governments are in so much debt that they "have financial difficulty in keeping themselves operating".
Mr Xiao, a former tax chief who was appointed last November to replace the reform-minded Lou Jiwei, told a press conference yesterday that he was aware of the default risks faced by some local governments.
He pledged to "cage the debt risks" by "opening the front door" (allowing local governments to continue to raise funds by issuing bonds) and "closing the back door" (stamping out illegal financing).
China has been on a borrowing binge to fuel growth since the global financial crisis in 2009.
This has raised fears that the growing debt could derail the economy if local governments are unable to repay the debts. To control such risks, the finance ministry launched a programme in 2015 to let local governments swop high-interest debts for lower-cost bonds.
According to the budget report released on Sunday, some 8.1 trillion yuan (S$1.6 trillion) worth of bonds have been issued over the past two years. Last year, the programme helped local governments save about 400 billion yuan in interest payments.
Total debt held by the central and local governments stood at 27.3 trillion yuan as at the end of last year - 36.7 per cent of gross domestic product.
The ratio, Mr Xiao told reporters, is low by global standards. "The debt ratio will remain unchanged throughout this year, and if you compare (this) with (that in) other countries, we can say that the Chinese government has room to borrow more," he said.
"The cake of the Chinese economy will grow bigger which, in turn, will grow government revenues. This forms the fundamental support for debt repayment."
In the 75-minute press conference, Mr Xiao answered questions on ongoing trials to replace corporate tax with value-added tax, poverty alleviation and individual income tax reforms.
He revealed that the government had clawed back 2.3 billion yuan in subsidies from companies that had cheated in a programme to promote clean energy vehicles.
China has spent billions in subsidies to promote electric and hybrid cars to fight air pollution and support its local carmakers. Last year, the finance ministry punished dozens of companies for reporting fake transactions.
Mr Xiao also defended the decision to omit China's defence spending from this year's budget report. The omission, the first since 1980, sparked questions over transparency on military spending. The minister said the numbers were included in another document that has not yet been made public.
State media, citing an unnamed finance ministry official, reported on Monday that China's defence budget will increase by 7 per cent this year to 1.04 trillion yuan.