Local government debt climbs but under control

CHINA'S banking regulator said that although local government debt has grown 2 percent in the past two years, it is under control.

Shang Fulin, chairman of the China Banking Regulatory Commission, said in Beijing yesterday the regulator will urge local government financing vehicles to cut risks while supporting economic development at the same time.

There are rising concerns that the hefty 10.7 trillion yuan (US$1.7 trillion) debt at the end of 2010 - the most updated data available - could expose China's financial system to high risks.

According to the National Audit Office, 63 percent of the total were government liabilities, and the balance, guaranteed by the local authorities, were borrowed by companies.

Banks were asked last year to extend repayment deadlines and make fresh loans to the local government financing vehicles to help settle loans which are about to mature under a risk-mitigation plan initiated by the central government, according to earlier media reports.

Repaying loans which are due seem more challenging for local governments whose fiscal revenue is drying up.

The State Council has recently granted 350 billion yuan of loans to be issued by the Ministry of Finance to the local governments to cover deficits for this year. It's the highest amount of annual debt relief since 2009, and 40 percent above that of 2012.

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