In the eyes of market participants, this has allowed financial institutions to replace their own implicit debt, but whether it can replace other peoples implicit debt is doubtful. In this years scheme of replacing Zhenjiangs implicit debt, the banks loans are also replacing the debts of other financial institutions.
Earlier, economic reports in the 21st century reported that the idea of Zhenjiangs pilot scheme for dissolving local implicit debt was generally provided by the State Bank with special loans for dissolving local implicit debt. The interest rate was around the benchmark. Asset management companies under the Zhenjiang Finance Bureau were the main undertakers, and then they were put on the platforms of their jurisdictions by means of ordinary loans. It is mainly used to replace the high-cost non-standard in implicit debt to reduce costs.
However, the relevant solutions have not been publicly confirmed by the relevant departments such as the State Development Bank, the Ministry of Finance, the Banking Insurance Regulatory Commission and so on. This credit guide of the joint stock bank means that the above scheme may be feasible.
According to 21st century economic reporters, the reason why July 14, 2017 was chosen as the time point was because the Fifth National Conference on Financial Work was held at that time. The meeting demanded that local Party committees and governments at all levels should establish a correct concept of performance, strictly control the increment of local government debt, hold accountable for life and check responsibility.
Simply put, with July 14, 2017 as the boundary, the previous implicit debt in stock must be resolved, and no new additions are allowed.
The bank requires that replacement credit should correspond to the original business one by one, and should be registered in the Ministry of Finance implicit debt monitoring system in time. Credit funds should be used only after confirming that replacement credit has been registered in the government debt system as a replacement type of information.
By the end of 2018, the interest-bearing liabilities of local financing platforms had exceeded 30 trillion yuan, accounting for 34% of GDP, according to CICCs research report. However, the debt-servicing guarantee ratio of platform companies is only 0.4 times, that is, the operating cash flow of these enterprises can not meet the debt and interest due in the current year. If we cant borrow the new and repay the old, we will face serious liquidity risk.
In fact, there are at least three differences between this data and the true size of implicit debt:
1) The main body of implicit debt is not only urban investment, but also state-owned enterprises, institutions and even government departments.
2) Implicit debt is not always interest-bearing debt, such as construction material funds payable, government medium-term and long-term financial expenditure, which needs to be included.
3) Urban investment debt is not necessarily implicit debt, for example, operational debt is not included in it.
However, the market consensus is that the scale of local implicit debt is relatively high. From the perspective of the implicit debt resolution plan published by the local government, it is mainly solved by means of co-ordinating funds to repay a batch; debt replacement to extend a batch; project operation to digest a batch; introducing capital to transform a batch.
Credit replacement implicit debt belongs to the way of debt replacement, renewal of a batch. However, this approach only lengthens the maturity of the debt, and the balance of the debt has not changed. It still needs to be further resolved in other ways.
In terms of the source of repayment, the bank requires that the replacement credit should have a debt resolution scheme approved by the government and a clear repayment fund arrangement. At the same time, it should carefully evaluate the rationality, compliance and adequacy of the repayment fund arrangement, and the repayment fund should not be properly implemented.
Source: Responsible Editor of Economic Reporting in the 21st Century: Wang Xiaowu_NF