Local governments must reports China 1,600 billion (AP)

Beijing-China's local governments have accumulated debts of 1.6 billion dollars, the national audit agency announced Monday, amid mounting concern about Chinese banks could be hurt if borrowers can't repay loans.

It was the first public accounting of indebtedness by the local governments to pay for the construction and other costs. The announcement, after months of speculation on the scale of debt, might help to mollify concerns about possible risks to banks that loaned too heavily to help China avert the global crisis of 2008.

Analysts say some local governments may be able to repay the loans but a banking crisis is unlikely, because China's State creditors are flush with cash and avoided the turmoil linked to mortgages that battered Western institutions.

Beijing has flexibility because economic growth is strong and its total public debt is well below that of the United States, Japan and some European economies, said Zuo Xiaolei, Chief Economist for the titles of the Galaxy in Beijing.

"But the Government must bear in mind the risks and try to prevent the debts local expansion too fast," he said.

The report of the National Audit Office gave no indication that the local public debt may not be refunded. The total figure was in line with analysts ' estimates, but it was not clear whether that included all the debts of the Government.

The Audit Office said that local governments must 9 billion yuan ($ 1.4 billion) for banks and other financial institutions and might be responsible for an additional 1.6 billion yuan (200 million dollars) in debt. The disclosure came in a report to China's legislature that has been published on the Agency website.

"Thanks to the ability to repay, some local governments can pay their debts only taking on even more debt," the report said.

UBS economist Wang Tao, in a report this month, said that local governments may eventually be able to repay the 2-3 billion yuan ($ 300-$ 450 billion) in loans, equivalent to 4-5 percent of total lending by the banks.

Many local Chinese Governments investment agencies created in the last decade to invest in construction and other projects, financed by loans from State banks.

An American researcher, Victor Shih of Northwestern University, has estimated total debt in 2004-09 to 12 trillion ($ 1.6 billion).

Bank loans, has been a key element of the stimulus of 4 billion yuan ($ 586 billion) of Beijing who helped China rebound from the global economic crisis. Beijing provided only about 25 percent of the total. The rest came from local governments, State enterprises and bank loans.

Regulators began to strengthen the controls last year amid warnings of local governments were loans too early.

A Central Bank Deputy Governor, on Ning, said in March 2010 that banks could face risks if local governments defaulting. But the regulator of the Ministry of finance and the Bank later issued a statement saying the risks were under control.

Many loans are likely to be repaid because they were invested in projects that will produce taxes and other revenues, analysts say. But they say some were given without warranty requested, some loans has been used to regulate spending instead of investment and some Governments committed themselves to future revenues.

Top Chinese State banks are among the largest, with a number that has more than 1,000 billion dollars in assets in the world.

Beijing injected tens of billions of dollars in China's largest banks in the last decade to clear away from the mountains of unpaid loans.

"You cannot rule out the possibility that the Government may remove bad loans from the banks again if there were defaults debt," said Zuo. "But that wouldn't be good for the development of the economy and banks as well."

___

AP researcher Yu Bing contributed.

___

National Audit Office report (in Chinese): 1893782.htm http://www.gov.cn/zwgk/2011-06/27/content (underscore)

View the original article here

Posted in: billion,China,governments,Local,reports