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People's Daily Online>>China Business

Bad loans to rise as debts come due

(Xinhua)

10:43, April 13, 2012

China's mounting local government debts pose growing risks as sliding revenue from land sales means that governments are likely to have difficulty in repaying debts, analysts said at the China International Banking Convention 2012 held in Beijing Thursday.

However, the risk is controllable as China's overall debt level remains low, said experts.

"We expect the non-performing loan ratio to pick up over the next 18 months as loans made during the credit boom of 2009-10 come due," said Zhang Yi, vice president and senior analyst with Moody's Investors Service.

The non-performing loan ratio (NPL) could rise to 6 to 9 percent over the next six quarters, she said.

The official NPL of Chinese commercial banks was 1 percent by the end of 2011, according to the China Banking Regulatory Commission.

The total outstanding local government debt was 10.7 trillion yuan ($1.7 trillion) by the end of 2010, according to the National Audit Office. The debt due in 2012 is estimated to be 1.8 trillion yuan.

The mounting debts raise the risk of default given the slump of the housing market and sliding land sales due to the central government's restrictive measures on home purchasing to rein in property prices.

Land sales reportedly accounted for as much as two-thirds of fiscal revenues for local governments in 2010.

However, land sales in 130 cities nationwide including Beijing and Shanghai fell 11 percent in 2011 compared with 2010, according to online real estate consulting firm soufun.com.

"China's local government debt is a problem but it is manageable," Dariusz Kowalczyk, senior economist and strategist with Credit Agricole in Hong Kong, told the Global Times Thursday.

The local governments have forecast a 10-15 percent slide in land sales, but this has already been incorporated into their budgets for 2012, so the central government has overall control of the situation and can use measures such as rollover of debts to avoid default, Kowalczyk said.

Calculations based on economic data show that China might have already rolled over 471.3 billion yuan in local government debt in 2011.

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