(Yicai Global) Dec. 31 -- Only the central government’s systematic overall planning can achieve high-quality and coordinated development in different regions of China, according to a new report.

China succeeded in tacking the risks to the public posed by the pandemic by raising its debt level this year, but an imbalance exists in regional development and some regions have high debt risks, the Chinese Academy of Fiscal Sciences said in a report published yesterday.

The economy has been in a so-called V-shaped recovery ever since China’s provinces introduced policies to contain the coronavirus. But the foundation for the recovery is not yet solid, and regional fragmentation is accelerating, so local fiscal sustainability issues are a concern, according to the report which was based on a survey of more than 10 provinces.

Expenditure on projects to ensure livelihoods rapidly increased, piling pressure on local finances and causing significant fiscal imbalance in some areas, the survey found.

Declining fiscal self-sufficiency in some areas has become a major problem, making them more dependent on the central government’s financial support, the survey noted. In Hainan province, for example, its 15 counties had a fiscal self-sufficiency rate lower than 50 percent in the first three quarters. Ten counties, accounting for almost 68 percent of the total, had a rate lower than 20 percent.

The fiscal self-sufficiency rate is the ratio of a local government’s general public budget revenue to its general budget expenditure. The lower the rate, the more help an area needs from the central government in the form of transfer payments and bonds.

Local governments face great pressure repaying liabilities amid an increase in debt risks, the report said. Anhui province, for instance, had raised CNY65.9 billion (USD10.1 billion) as of the end of last month through refinancing bonds to repay the principal of general and convertible notes issued between 2015 and 2017, while the central government’s upper limit on the province’s new debt is CNY70.6 billion.

China should set up a smooth exit mechanism for anti-coronavirus policies to mitigate the risks posed by a rapid withdrawal of these policies and maintain a certain level of spending on the premise of optimizing the expenditure structure, the report suggested.

The country must take multi-faceted measures based on local conditions to prevent and control implicit debt risks, the report said, adding that outstanding debts with stable cash flows, for example, can be cleared via debt-to-equity swaps.

Editor: Peter Thomas