Local govts feel debt pressure

09:05, June 24, 2010      

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Some local governments are at risk of defaulting on loans and bonds, according to findings by the National Audit Office released Wednesday. Analysts, however, said the dangers could be contained regionally and will not threaten the entire country.

Some local governments are now under pressure to pay back debt, Liu Jiayi, head of the National Audit Office, said Wednesday in an audit work report to the Standing Committee of the National People's Congress, the country's parliament.

The percentage of debt balances over fiscal income last year was more than 100 percent in 7 provinces, 10 cities and 14 counties, with the highest reaching 364.77 percent. These debt-mired regions repaid capital and interest worth of 274.55 billion yuan ($40.27 billion) via new lending in 2009, according to Liu.

That figure accounted for nearly 50 percent of the total amount of capital and interest repayment, showing these regions' inability to repay debt through fiscal income, Liu said.

Local governments mainly raise debt by setting up shady government-backed companies to skirt regulations. Funds raised by these firms make up more than 50 percent of total debt, Liu said in the report.

Lending to these firms reached 7.38 trillion yuan ($1.08 trillion) in 2009, an increase of 70.4 percent over the previous year, Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a meeting in April.

Debt problems in some regions have become urgent because of a lack of transpar-ency, Jia Kang, head of the Research Institute for Fiscal Science under the Ministry of Finance, said at a conference Wednesday. But the debt crises will not become a national problem, he added.

Guo Tianyong, director of the Research Center of China Banking at the Central University of Finance and Economics, also said a nationwide debt crisis won't be a concern. These financing platforms bear major responsibilities of local governments' inability to repay debt, Guo said.

There should be stronger supervision over government-backed firms, Liu stated in the report.

Heeding people like Liu's advice, the country has already taken measures to monitor these backdoor financing platforms.

The State Council unveiled tough regulations on the supervision of these firms June 10.

The country's cabinet stipulated they cannot use the fiscal revenue of the local governments as loan collateral, a process that has led to risky loans in the past.

Source: Global Times


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