Quarter of local govt debt at risk

08:59, October 15, 2010      

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About 26 percent of all loans to local government financing vehicles are at serious risk of default, regulators concluded after a probe into what some analysts see as a liability for the economy.

The estimate that 2 trillion yuan ($300 billion) of local debt could turn sour is slightly higher than an earlier assessment by the Chinesebanking regulator that 23 percent, or 1.76 trillion yuan ($261.7 billion), was in trouble.

The results of the latest investigation, published on the front page of the official China Se-curities Journal Thursday, are a first step in what the government has promised will be a thorough effort to clean up the mess left by a surge of stimulus spending.

Local governments launched thousands of hybrid government-company bodies to get around the restrictions and fund infrastructure.

The financing vehicles did not conform to regulations, fiscal guarantees did not conform to regulations and there will be risks in paying them back, the newspaper said.

Large State-owned banks provided about 40 percent of the loans to the financing vehicles, while smaller banks accounted for 26 percent and government-controlled policy banks the remaining 30 percent.

Source: Global Times


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