China imposes limit on local government debt

China has imposed a limit on local debt, state media reported Saturday, as the world's second-largest economy tries to control massive borrowing by its regions.

The standing committee of China's National People's Congress (NPC) approved the ceiling of 16 trillion yuan ($2.5 trillion) in local debt for this year, the official Xinhua news agency reported.

The NPC is China's Communist Party-controlled legislature.

The total for 2015 is made up of the 15.4 trillion yuan in local government debt outstanding as of the end of last year and 600 billion yuan deemed the limit localities can take on in additional borrowing this year, Xinhua said.

A new budget law and a government directive earlier stipulated that China should limit the local government debt balance and that the size is subject to approval by the NPC after submission by the State Council, China's cabinet, Xinhua said.

China is trying to transform its economic model away from debt-fuelled investment projects and make consumer spending the driver of growth as its economy matures and its citizens become wealthier.

Fitch Ratings said in a statement Friday that the move showed "a commitment by the authorities to bolster the borrowing framework for local government as part of a broader debt reform initiative".