China vows to contain gov't debt risks

BEIJING -- China will make containing risks of local government debt an important task for 2014, as rising debt is becoming a major threat to the country's healthy development.

"China should coordinate short-term measures and a long-term mechanism to defuse the local government debt risks," said a Friday statement issued after the Central Economic Work Conference. The meeting traditionally sets the tone for next year's economic planning.

The statement promises strict procedures for raising debt, and that local governments will be held accountable for their debt. It also pledged to correct the GDP-obsession mindset of many officials.

Friday's announcement came just days after the Organization Department of the Communist Party of China (CPC) Central Committee decided on a new system to evaluate officials, abandoning much of the focus on GDP.

"Local government debt will be an important indicator in assessing the performance of officials," the department said.

Local government debt surged during the investment and construction binge that was part and parcel of a stimulus in 2008 to buffer against the global financial crisis.

A huge number of debt-financed projects have not generated any cash flow since. Local government debt, which the National Audit Office (NAO) estimates at around 10 trillion yuan ($1.64 trillion), has become a major threat to financial stability.

To get a more clear understanding of the situation, the NAO announced a nationwide audit of government debt in July, but the results have yet to be published.

The most recent official data on local government debt was a NAO survey released in June that put the debt of 36 local governments at 3.85 trillion yuan at the end of 2012, up 12.9 percent from 2010.