(Yicai) March 7 -- China will gradually defuse local governments' debt risks through high-quality development, according to Lan Foan, the finance minister.

The ministry will speed up forming a debt management mechanism consistent with high-quality development while refining local governments' management of liabilities, Lan said at a media conference yesterday during the second session of the 14th National People's Congress.

The ministry will optimize central and local governments' debt structures and reasonably arrange the scale of regional leverage, Lan said. It will refine the mechanism to manage local governments' special-purpose bonds through the entire life cycle from borrowing to repayment to increase the efficiency of capital use.

At present, local governments' debt risks are under control but risks do exist in some regions, Luo Zhiheng, chief economist at Yuekai Securities, told Yicai. Given the central government's lower debt ratio, it has large space for leverage, so it has recently shouldered more new debts to make room for local administrations to improve their fiscal situations, Luo added.

Debt itself is not a risk but it is critical to optimize debt burdens allocated to the central government and various levels of local governments, Luo said, adding that factors such as the potential investment target, the chosen project location, debt maturity, and creditor types are also important.

As long as funds gained by issuing bonds are further invested in industries and regions of high-quality development, risks are not enlarged even though the level of indebtedness increases, Luo analyzed.

This year, local governments' quotas of special bonds should be tilted toward areas and projects with sufficient preparation and a high level of investment efficiency, according to a government work report disclosed during the ongoing Two Sessions. This is driving the optimization of debt structure, which should lower the related risks as returns from premium projects are high despite the expansion of debt, Luo added.

The ministry will rigorously adopt mechanisms of lifelong accountability and retrospective investigation regarding local governments' borrowing, Lan said, adding that it will punish people accountable for added risks more strictly and make efforts to build a long-acting mechanism to prevent and defuse risks arising from hidden debts.

Editors: Tang Shihua, Emmi Laine