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Regulators try to ease fears about Chinese agencies

BEIJING — Regulators tried today to ease fears about dangers posed by the heavy debts of local Chinese government investment agencies, saying some might not be able to repay loans but banks face no systemic risk.

The World Bank and private sector analysts have warned about heavy debt at such agencies, which invest in real estate and infrastructure. They said banks might face losses if they cannot repay loans believed to total hundreds of billions of dollars.

“Local financing platforms indeed have some loan risks, but so far in general those risks are controllable and will not form systemic risks,” the Finance Ministry and China Banking Regulatory Commission said in a joint statement.

“Most of the loan projects can generate stable and adequate cash flow and can cover principal and interest payments,” it said. “Even if the finance vehicles’ loans have a partial default, that can be covered by banks making adequate provisions.”

The statement gave no details of total borrowing or how much of it might not be repaid.

State media say local government investment agencies owe six trillion yuan ($880 billion) to state banks. An American researcher, Victor Shih of Northwestern University, estimates total local government borrowing in 2004-09 at 12 trillion yuan ($1.6 trillion).

Beijing ordered an audit of local investment agencies in May and ordered local leaders in June to improve oversight of their borrowing.

“We are accelerating the study of how to set up a long-term system to regulate loans of local governments and prevent fiscal and financial risks,” said today’s statement.

Earlier government statements said some banks and financial organs had poor risk awareness while investment agencies lacked adequate credit management.

State banks were long expected to prop up government companies, lending to them regardless of their ability to repay. The government has written off some $400 billion in nonperforming loans at state banks in the past decade.

The central government paid for only one quarter of its 4 trillion yuan ($586 billion) stimulus plan. The rest came from state companies and borrowing by lower-level governments from state banks.


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