Some 43 percent of local government debt, or 4.6 trillion yuan, falls due this year and the next, with the maturities of other debts coming huddled at 2016-2018.

Some 43 percent of local government debt, or 4.6 trillion yuan, falls due this year and the next, with the maturities of other debts coming huddled at 2016-2018.

After several round of clean-ups by regulators, the risks that banks are carrying from local government financing vehicles have been much reduced, the China Securities Journal reported, quoting an “authoritative source.”

Some 2.8 trillion yuan of the loans, or a third of local government debt, will be booked as general corporate loans with more than 2,900 local financing vehicles concerned, the source was quoted as saying.

Loans granted to more than 10,000 local government vehicles have stood at 10.7 trillion yuan by the end of 2010, the National Audit Office said in June.

There have been signs of defaulting of these debts so far, as nearly half of them fall due in the coming two years; moreover, some local financing vehicles are seemly regaining momentum in obtaining new loans in other forms, the source told the official newspaper.

China Banking Regulatory Commission Chairman Liu Mingkang told a working conference recently to rein in local financing debts, saying that “the principal and interests of the loans which are due should not be rolled over or repaid by new loans.”

China’s stockpiling loans to local financing vehicles have long been considered as Chinese banks’ hidden future risks. Private agencies or institutions have widely estimated local debts at 14 trillion yuan, compared with the official 10.7 trillion.

No matter how much loans were extended to local govnerments—14 trillion or 10.7 trillion—it is a controllable level, said Qu Hongbin, China’s chief economist with HSBC.

He suggested that those debts should be restructured to avoid defaulting risks of banks, given a liquidity problem in local debts.

Source:caijing