The central government in China should let local governments handle their financial matters and bankruptcies, in order to help rein in mounting debt risks, a central bank official said Dec. 25, according to Reuters.
Xu Zhong, head of the People's Bank of China's research bureau, wrote in an editorial on financial news website Yicai that the responsibility to issue and repay bonds should rest with the city or county that actually uses the funds.
"Only if we allow local state-owned firms and governments to go bankrupt will investors believe the central government will break the implicit guarantee," he said, mentioning the 2013 bankruptcy of Detroit as an example.
However, Zhong said social services are an exception and should be maintained.
The official's comments follow a resolution to strengthen the regulation of local government debt in 2018, according to the report.
Meanwhile, China's National Audit Office reportedly said Dec. 23 that China should address the perception that the central government will foot the bill for local government debt.