Budget Law and local needs

Huang Jianchu, a senior member of the Budgetary Affairs Commission of the Standing Committee of the National People's Congress, recently shared with reporters his idea of strengthening local People's Congresses' supervision of local government debts to avoid risks.

That is a good way to regulate local government debts and prevent them from growing out of control, but it requires systemic reform that includes revision of the Budget Law, says a 21st Century Business Herald commentary.

A dilemma exists for China's local governments as the current Budget Law does not allow them to raise debts, yet they still need funds to meet their responsibilities. Because of this, it is common practice for local governments to raise funds through the enterprises under their control. That is the key reason why many local People's Congresses cannot implement effective supervision over the debts.

Therefore, to strengthen the supervision over local governments' debts, it is necessary to first revise the Budget Law to bring the debts of local governments into the sunshine. Only when local government debts are under their true borrowers' names will the legislative body be able to effectively supervise them. That in turn requires deepening reform and redefining the role of local governments in the market.

Unlike rational enterprises that consider their repayment capabilities when borrowing, local governments are generally insensitive to their repayment capabilities. Before giving a green light to local governments being legally allowed to have debts, China needs to separate local governments from the burden as well as the power of economic construction, which consumes enormous amounts of money.

There are other prerequisites to realizing effective supervision by the legislature, such as establishing a modern government accounting system and drafting an independent government balance sheet. Both are indispensable for legislators to gain a clear knowledge of the property owned and debt raised by a government, so they can make a sound judgment whether to permit more.

Of course, to curb the indefinite growth of local government debts, a clear line should also be drawn between central and local government finances. All these problems must be solved so that the legislators can truly exert control over local governments' debts.

(China Daily 03/07/2014 page10)