(Yicai) Aug. 5 -- Inner Mongolia Autonomous Region has become the first to exit the Chinese government’s list of 12 regions with high debt risk, showing the success of its aggressive debt‐resolution measures and restoring greater freedom for its investment and financing activities.

The northeastern region will further strengthen government debt management, consolidate the achievement of exiting the list, and guide local cities and counties to continue debt‐resolution work, Inner Mongolia’s legislative body noted in its recently published accounts review report for last year.

The debt pressure on China’s local governments has continued to mount in recent years under the impact of adverse factors such as the Covid-19 pandemic and the downturn in the real estate market. 

In January last year, China's cabinet issued a new regulation to limit new state-funded projects in regions with high debt risk and prevent them from taking on new liabilities. Inner Mongolia, the cities of Chongqing and Tianjin, the provinces of Liaoning, Jilin, Heilongjiang, Guizhou, Yunnan, Gansu, and Qinghai, as well as Guangxi Zhuang Autonomous Region and Ningxia Hui Autonomous Region, were added to a list of such regions.

Those listed face many investment and financing restrictions, with local private investments also affected, so many of them have been actively striving to resolve their debt risks and exit the list, Wen Laicheng, a professor at the Central University of Finance and Economics, told Yicai.

Inner Mongolia made a breakthrough last year, cutting its hidden debt by 67 percent, the regional government said in its work report in January. 

Hidden debt, or implicit debt, is taken on through local government financing vehicles. It is not included on localities’ balance sheets and constitutes a key financial risk. Most regions in China are tackling this issue by swapping out hidden debt for new bonds.

Inner Mongolia’s debt stood at about CNY1.4 trillion (USD195 billion) at the end of last year, of which government bonds accounted for CNY1.2 trillion and local government financing vehicles for CNY240.4 billion (USD33.5 billion), meaning its hidden debt share has fallen below 20 percent of the total, according to statistics from Huachuang Securities. 

Ningxia has also met the conditions to exit the list, its finance director Sun Zhi said in March, adding that it has applied to the State Council for removal and is expecting to do so this year.

Editors: Dou Shicong, Martin Kadiev