Local govt can pay their debts

According to a senior Chinese Ministry of Finance official, local governments have the financial resources and negotiating power to clean up their 10.7 trillion yuan ($1.7 trillion) debt pile without the need for Beijing's intervention, says an article on reuters.com. Excerpts:

Many investors see intervention from the central government as necessary to resolve what they consider a key risk to China's financial health, but this is unlikely to be forthcoming.

"Local governments have the ability (to pay their debts), especially provincial-level governments. They have financial resources, they can negotiate with banks," Jia Kang, chief researcher at the Ministry of Finance, told reporters on the sidelines of China's annual meeting of parliament.

Although Jia does not have the last say on the way China tackles its bad loans, his remarks offer an insight into how Beijing views the debt morass.

A 2012 economic blueprint presented to the National People's Congress by Premier Wen Jiabao also suggested that Beijing was not about to extend aid to local governments.

"We will continue to deal with outstanding debts by properly classifying them and managing them accordingly," Wen said.

Room to adjust reserve ratio

Senior economic officials said on Monday that they might encourage bank lending, while also hinting that the country's currency might not appreciate as rapidly as it has in recent years - a contentious issue in the United States presidential campaigns this year, says an article on nytimes.com. Excerpt:

Speaking at a news conference, Zhou Xiaochuan, the governor of China's central bank, said bank reserve requirements - the percentage of deposits that banks must hold back - could be loosened further after having been eased already last month.

"We have a lot of room to adjust the reserve ratio," Zhou said. "On the other hand, it is necessary to see whether there is a necessity to adjust." The reserve ratio was tightened throughout 2010 and 2011 after a huge government stimulus program of bank lending set off a bubble in real estate prices.

In the first two months of this year, these measures began to bite, and bank lending fell - possibly faster than officials expected. Normally, as many as a quarter of all bank loans in a year are made in this two-month period. This year, however, only 18 percent of the expected bank loans for 2012 were made, implying either sharply slowing demand for loans or bank liquidity problems.

(China Daily 03/15/2012 page10)