Local gov't debts risks controllable

Updated: 2011-09-20 08:55


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BEIJING - Chinese experts said local governments' debts risks are controllable, seeking to ease concerns that the country's credit binge will result in a rise in bad loans and derail economic growth.

According to the country's top auditing authority, the debts of local governments stood at a little more than 10.7 trillion yuan ($1.67 billion) at the end of last year.

The debt ratio of local governments stood at 70.45 percent if their contingent liabilities are all included in the calculus, lower than the 100 percent warning line, said Li Weian, president of Dongbei University of Finance and Economics.

Data from the National Audit Office showed government gross debt was about 17 percent of gross domestic product (GDP) at the end of 2010, tiny when compared with the debt-to-GDP ratios for the world's major economies currently mired in debt crises. Different from the European sovereign debt crisis, China's local governments' debts are mainly internal debts, which means most of the creditors are Chinese residents and institutions, Li said.

"Compared with the EU's debt crisis, it will be easier to solve China's local government debt problem," he said.

Experts are upbeat about local governments' repayment ability, due to the country's fast economic growth and surging fiscal revenues.

China's GDP rose 9.6 percent year-on-year to reach 20.45 trillion yuan in the first half of this year, while fiscal revenues jumped 28.3 percent from a year earlier to 7.43 trillion yuan in the first eight months, according to data from the National Bureau of Statistics.

Fitch downgrade announcement

Earlier this month, Fitch Ratings, one of the world's three biggest ratings agencies, said that it may downgrade China's credit rating within two years as the country's banks struggle with debt loads following a lending surge to help lift the economy during the financial crisis.

However, Ma Weihua, president of the China Merchants Bank, said the possibility of "large-scale" non-performing assets at banks was low.

People always think the buildup of local government debts will bring uncertainties to the country's banking system, as 70 to 80 percent of the debts were borrowed from banks, or more explicitly, the country's four biggest banks, he said.

However, first-half reports of the big four lenders showed that they still maintained sound asset quality. The banks' non-performing loan (NPL) ratios on lending to local government financing vehicles were lower than their overall NPL ratios, Ma said.

Besides, local governments own tangible realizable assets, including land, natural resources, and fixed assets. They can improve their repayment capacity by monetizing part of the assets, Ma said.

Tightening measures

Although local government debts are not major concerns for the government, their risks can not be ignored, Li said, as the country's economy will be affected if the situation gets worse.

In fact, the central government has realized the urgency of clearing up local government debts.

The country's top banking regulator has urged banks to refrain from providing loans to local governments for unapproved projects and vehicles and to tighten credit management in order to prevent debt increases.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said last month that the nation's efforts to ease debt risks are "going smoothly."

Li suggested that the central government add the debt ratio factor into the formal evaluation criteria of local government officials in order to urge them to clear up debts.

The country should set up a risk warning system for local government debts as soon as possible and try to make the debts more transparent, he noted.