Local Government Loan is re-book by China
On Monday, the China Securities Journal reported Chinese regulators have been rejecting local government debts to ease risks to banks. Over 40 percent of the troublesome local government debt falls due this year and next, a source said. A third of loans granted to local government financing vehicles will be booked as general corporate loans. It is some 2.8 trillion Yuan ($438 billion).
A move that is set to relieve the pressure on banks to raise fresh capital is Banks can then put fewer provisions for these loans. The problem of local government financing vehicles would have a less severe impact on Chinese banks than previously expected if it is true. But, it will happen as long as the loans don’t go sour. In 2011 and 2012, Local government debt levels will peak with 4.6 trillion Yuan. It is about 43 percent of the total estimated loans that governments have engineered to pay for investments and infrastructure.
In June, China’s state auditor laid the ground for a debt clean-up by releasing a review in an attempt to quell investor jitters. The review said local governments had borrowed 10.7 trillion Yuan by the end of 2010. China had underestimated local government liabilities, Moody’s said.