Implicit debt: Local governments often raise funds through various channels, including debt financing platforms and city investment companies. These debts are often called "hidden debts". Because these debts are not shown in the budget, it is difficult to effectively supervise and control them.
High leverage risk: The local government's debt scale is huge, the debt level is high, and most of the debt is used for long-term investment projects such as infrastructure construction, and the return period of assets is long, which may increase the risk of debt of local governments.
Downward risk of local economy: Local government revenue mainly comes from land transfer fees and taxes, which may be affected by the downward trend of local economy. With the economic downturn, the government's fiscal revenue may decline, which makes it difficult for local governments to repay their debts.
In order to resolve the local government debt risk, the following countermeasures can be taken:
Improve the debt management system: establish a comprehensive and effective local government debt supervision mechanism, including formulating debt management system, improving information disclosure system and strengthening debt audit.
Strengthen risk assessment: strengthen the assessment and monitoring of local government debt risks, find potential risks in time, and avoid risks developing in a bigger direction.
Promote market-oriented debt-to-equity swap: convert local government debt into equity through market-oriented methods, ease the debt pressure, and promote the reform of state-owned enterprises.
Increase fiscal revenue: by expanding fiscal revenue channels, increase fiscal revenue of local governments and reduce debt pressure.
Strengthen investment supervision: strengthen the audit and supervision of local government investment projects to ensure that investment projects can bring sustainable economic benefits and reduce debt risks.