China is confident it can fend off financial system risks and will continue with tough steps to curb illegal borrowing by local governments, a senior financial official said yesterday.
Finance Minister Xiao Jie told a briefing that the ratio of government debt to annual economic output was 36.2 per cent at the end of last year, slightly down on the 36.7 per cent from a year earlier.
This is safely below the 60 per cent international "warning" level, he said, and lower than other major economies and some emerging market countries.
China's rapid debt build-up in recent years has triggered warnings from global observers. Last year, rating agencies Standard & Poor's and Moody's cut China's sovereign credit ratings on the back of worries about borrowing.
A report by International Monetary Fund economists last December said China should include local government financing vehicles, public-private partnerships and government-guided funds in tallying local government debt to give a fuller picture of the extent of the debt overhang.
Mr Xiao sought to diffuse those worries yesterday by highlighting measures to manage government debt. He noted that local government debt issuance is the only legal means of borrowing. The programme will be expanded this year to 1.35 trillion yuan (S$281 billion), up 550 billion yuan from last year.
Mr Xiao also promised to continue cracking down on "chaotic debt financing", adding: "Whoever raised the debt would be held responsible for it."
Almost 100 local government officials were punished in 10 different cases of illegal borrowing last year, he said. In enforcing these measures, "we are fully able to ensure there is no systemic risk".
Vice-Finance Minister Shi Yaobin said that officials and lawmakers are working on a draft Bill for a widely anticipated property tax that could offer local governments a much-needed recurring source of income.
"Our overall thinking on property tax is legislation first, full authorisation, move forward step by step," Mr Shi said at the briefing, reiterating a slogan that officials have touted in recent months, but he stopped short of offering a specific timeline.
A spokesman for China's Parliament said on Sunday that tax reforms, including the introduction of a property levy, are expected to be completed by 2020.
Mr Shi noted that taxes in other countries are usually based on the appraisal value of the properties and levied by local governments.
China will take reference from these foreign systems, but design one that is suitable for its specific conditions, he said.
Pilot schemes were started in Shanghai and Chongqing in 2011 but progress for a national roll-out has been slow due to resistance from vested interests, such as people with multiple houses and local governments that rely on land sales as a key source of financing.
Separately, Budget documents released on Monday indicated that China's foreign affairs spending will reach 60 billion yuan this year, up 15 per cent from 52 billion yuan last year. This comes as China seeks to "build a new type of international relations" that has seen it play a bigger role on the global stage.