September 22, 2017 / 11:58 AM / a year ago

China to push fiscal reform after October party congress: government researcher

BEIJING (Reuters) - China will push fiscal reforms that could boost revenues for local governments after next month’s key party congress, a senior government researcher said on Friday, as the country seeks to contain debt risks.

S&P Global Ratings downgraded China’s long-term sovereign credit rating on Thursday, less than a month ahead of one of the country’s most sensitive political gatherings, citing increasing risks from its rapid build-up of debt.

Analysts believe China needs to push through some painful changes, such as fixing the fiscal system to reduce the burden of debt-laden local governments and overhaul state-owned firms.

“Reform of central and local government finance is very complex, as it concerns the division of revenues and spending obligations between central and local governments,” Liu Shangxi, head of the Chinese Academy of Fiscal Sciences under the Ministry of Finance, told a news conference.

“We will gradually push forward the reform, and I believe their will more actions on this aspect after the 19th party congress,” Liu told a small group of reporters.

The fiscal reform will boost the “enthusiasm” of local governments, implying more revenues for them, but Beijing will make sure such changes are orderly, he said, without elaborating.

Top leaders are preparing for the once-every-five-years congress of the Communist Party, which will start on October 18.

China has taken steps in recent years to tighten controls on new local government debt to help ward off risks following a borrowing binge after the global financial crisis.

Some local governments, which can only issue bonds within the annual official quotas, have raised funds via “disguised channels”, prompting a government crackdown.

China will also push forward reforms of state-owned enterprises that are facing “many difficulties”, Liu said.

Liu said that China’s rising debt is not a big concern since it funds infrastructure and urban development, which support future economic growth.

Reporting by Kevin Yao; Editing by Clarence Fernandez

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