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Moody's praises efforts at containing local debts

By Feng Jianmin (Shanghai Daily)

14:11, March 20, 2012

CHINA has managed to effectively contain local government debts and this is credit positive for its Aa3 rating, Moody's Investors Service said yesterday.

"Efforts by China's policymakers to tighten bank lending rules and direct local governments to curb borrowing are having the desired effect," Moody's said in a report.

The ratings agency said Premier Wen Jiabao's announcement last week that the inclusion of local government debt in the central government fiscal budget will increase transparency as well as impose greater discipline and scrutiny on local government investment and borrowing plans.

Wen also said all new debts in the future will be included in the fiscal budget and supervised by the local and national people's congress.

The China Banking Regulatory Commission has detailed how banks can roll over some loans lent to local government financing vehicles.

The CBRC has divided the local government debts into five categories. For example, local government financing vehicles with sufficient funds but uncompleted projects can extend their payment by agreeing with the banks. The vehicles with insufficient funds and can't attract private funds will be banned from bank borrowing and the debts have to be paid by installments from fiscal revenue.


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