Liu He: Local governments must pay back debts to SMEs

The central government continues to leverage the social credit system to crack down on local governments that fail to make good on payments to private enterprises.
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Chinese Government Social Credit: Loan Repayments SMEs

At a national teleconference on Monday, Vice-Premier Liu He, China’s chief economic strategist and Xi Jinping’s aide-de-camp, reiterated that the central government will continue to compel local governments to pay outstanding debts, particularly to SMEs.

Government debt is one of the big talking points under the umbrella of social credit, as the central government is leveraging the social credit system to crack down on local governments that fail to make good on payments to private enterprises, or newly-appointed officials who refuse to honor the debts of their predecessors.

Chinese regulators see debt non-payment by city and provincial governments as a major factor stunting the growth of local economies, and have pushed forward debt-clearing initiatives in provinces nationwide. Municipalities with severe debt on the books are subject to public naming and shaming under social credit policy. The governments of Shenyang and Handan, in arrears of RMB 36 million and RMB 9 million respectively, have been added to a public blacklist for outstanding payments.

Under the repayment push, local governments are expected to clear no less than 50% of outstanding bills by the end of next year. A key example here is the northeastern city of Harbin, which announced the latest numbers out of its arrears-clearance campaign last month. Official city stats cite repayments of RMB 7 million in the first half of this year, and RMB 340 million as of today, out of a total debt of RMB 4.1 billion.

Debt clearance has been a focus of the social credit system since its inception in the early 90s, but it’s been given a higher priority as top leaders seek to ease the burden on private businesses suffering under China’s slowing economy.

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