BEIJING (Reuters) - China will allow local governments to meet "reasonable" funding requirements to support economic growth next year, the finance ministry said on Friday, saying that the sector's risks were under control.

Beijing has imposed tight controls in recent years on new local government debt issuance to help ward off financial risks following a borrowing binge since the global financial crisis.

In a statement on its website, the ministry said it would continue to allow local governments to swap high-cost maturing debt for lower-cost debt, a program it kicked off in 2015.

Steps will be taken to "meet local governments' reasonable financing needs to support steady local economic growth", the ministry said.


"Local governments will continue to issue bonds to replace the existing debt to help reduce interest burdens, ease debt repayment pressure and guard against financial risks," it said.

China's overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006, the kind of surge that in other countries resulted in a financial bust or sharp economic slowdown, some analysts say.

The finance ministry insisted China's local government debt is under control and its debt burden would not show a big change this year.

Local government debt was 89.2 percent of revenues in 2015 - below the international warning line, and 38.9 percent of GDP, lower than most emerging economies, the ministry said.

China capped the rise in outstanding local-government debt at 17.2 trillion yuan in 2016, from 16 trillion yuan in 2015. This excludes bonds issued under the debt swap scheme.

Under the swap, local governments issued 3.2 trillion yuan in bonds in 2015 and the ministry said by the end of September this year the total had risen to 7.2 trillion yuan. The ministry said the swaps would cut local government interest payments by 600 billion yuan over the course of 2015 and 2016.

Some analysts estimate that total debt refinancing will amount to 11 trillion yuan in 2016 and 2017.

The ministry did not provide any estimate for new local government bond issuance in 2017. But Wen Bin, an economist at Minsheng Bank, said local governments would be allowed to issue new debt next year to support the broader government drive to boost infrastructure investment and the economy.

"Local governments are under pressure to expand expenditures but their revenues could slow given the downward pressure on the economy," he said.

The ministry said local government fiscal revenues would maintain a medium-to-high growth rate, which would help control local debt risks.

Still, the ministry warned the ability of some local governments to repay their debt had weakened and the debt risks of some regions exceeded warning lines.

"The size of local government debt remains large although the structure has changed, I don't expect policies to be relaxed," said Zhang Yiping, an economist at Merchants Securities.

($1 = 6.7617 Chinese yuan renminbi)

(Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Simon Cameron-Moore and Neil Fullick)

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