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China Mulls Risk Warning Mechanism for Local Govnt Debt

12-26 11:07 Caijing
China’s Ministry of Finance is mulling a risk warning mechanism to raise awareness of risks in local government debt default, Chinese media reported.

The Ministry of Finance is mulling a risk warning mechanism to raise awareness of risks in local government debt default, Chinese media reported.

The minister Xie Xuren said last week that new local government borrowing should be strictly watched to protect it from morphing into a financial crisis. 

Answering the central government’s call, Guangzhou, a local reform pioneer, became the first city in China to disclose its local debt on the city’s 14th session of the Standing Committee of National People's Congress Tuesday.

Statistics show that the Guangzhou government is liable to 178.61billion debt, of its 241.4billion yuan total debt at the end of June, with risks under control.

However, borrowed capital needs to be tapped more effectively as more than 1billion yuan was left idle for over six months, costing as much as 41million yuan in repaying interests.

Besides, capital flights were also spotted in some local government financing platform companies.

Under the central government’s efforts to stabilize growth in the midst of a global recession, provinces and municipalities launched a series of stimulus package, flooding the economy with trillions of yuan in new loans.

The National Audit Office of China acknowledged that local government debt totaled 10.7 trillion yuan (U.S. $1.7 trillion) at the end of 2010.

China’s local government debt should be closely watched as there will be a repayment hike in the following two years, the Development Research Center of the State Council (DRCSC) warned in an earlier report.

The report said that about 42% of the local government debts are coming due by the end of this year and about 53% due by the end of 2013, highlighting risks lurking in China's financial system.

 

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