BEIJING -- China's finance minister said that new steps to stimulate a slowing economy will not adversely affect the finances of the national and local governments.
"Government debt, both at the central and local level is under control," Liu Kun said in a news conference on Thursday.
The most concern is over local governments. They will have revenue squeezed by new tax cuts for manufacturers and other industries, as well as falling revenue from land sales as the property market cools. At the same time, Beijing is pushing them to boost spending and investment.
Local Chinese governments had accumulated total official debt of 18.39 trillion yuan ($2.74 trillion) as of the end of 2018. While this marked a reduction of about 2 trillion yuan from midyear, the total rose again by about 400 billion yuan in January, according to finance ministry figures.
These figures, however, exclude the off-balance sheet borrowings used extensively by local governments in recent years to finance spending, especially for infrastructure projects. These "hidden debts" last year reached 40 trillion yuan, according to estimates by S&P Global Ratings and China Chengxin Credit Rating Group. S&P called this "a debt iceberg with titanic credit risks."
Liu on Thursday acknowledged that local officials may be tempted to go further down this route amid their budget squeeze. He warned that Beijing will take action against authorities that overstep controls the national government has put on off-balance sheet financing.
"We will not tolerate anyone who raises new hidden debt," he said. "We have taken very strict measures. In resolving current hidden debts, we will adhere to the principle that the central government will not come to the rescue."
"Curbing illegal financing by local government remains one of the top priorities of the Ministry of Finance," wrote economists Wei Yao and Michelle Lam of Societe Generale before Liu's remarks. "This is consistent with our view that policymakers are only easing for stability, rather than for a major re-acceleration."
Economists generally see the national government in much better financial shape than local authorities. Even so, Chinese Premier Li Keqiang's announcement Tuesday of 2 trillion yuan of tax cuts and other stimulus has raised questions about how authorities will meet Li's target of keeping the official budget deficit below 2.8% of gross domestic product.
One way will be to extract higher dividends from state-owned companies, Liu said Thursday.
"To cushion the [stimulus] increase, the government is raising the share of profits the state receives from designated state-owned financial institutions and central enterprises," he said.