会议综述

Based on Japan’s experience, Chairman of the NIFD Li Yang suggests establishing policy financial institutions to facilitate local government financing

Li Yang noted that China is in a similar development stage and faces similar problems as Japan once was in and did. In addition, since both countries have adopted a unitary state system and are characterized by the dominance of indirect financing and their public sector leverage ratio is higher than the private sector’s, it is relevant for China to draw upon Japan’s experience in managing local government liabilities. Specifically, China should learn from Japan’s experience of making the central government responsible for regulating local government financing, allowing banks to finance for local government liabilities but requiring them to follow strict rules, and putting into place professional and policy mechanisms to facilitate local government financing. In particular, China should draw upon Japan’s experience in establishing local public financial institutions. Such institutions are policy financial institutions jointly funded by local governments to provide long-term financing for local governments at low costs. They follow strict procedures in loan issuance, which are proven to be efficient procedures.

Deputy Director of the NIFD Zhang Xiaojing on leverage ratio risks: Traditional system is the largest gray rhino

Zhang said that the reduction of China’s macro leverage ratio is largely attributable to the contribution of private enterprises. However, the leverage ratio of the public sector encompassing SOEs and the government sector exceeds the private sector’s leverage ratio, and constitutes the ultimate source of leverage ratio risks. He believed traditional system is the root cause for the high leverage ratio of SOEs and the massive implicit liabilities for local governments. He said China should steadily reduce its leverage ratio and eliminate the defects of the traditional system. In demand-side management, the central government rather than the household sector should increase leverage ratio to stabilize overall leverage ratio. In supply-side reforms, China should facilitate the bankruptcy and reorganizations of zombie companies and promote the market clearing function. SOEs and local governments must be brought under strict budgetary constraints, and the illusion of implicit government guarantee must be removed. The financial system must promote competition neutrality and correct its institutional bias.