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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 24, 2011> ECONOMY
UPDATED: June 10, 2011 NO. 24 JUNE 16, 2011
Debt Worries
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Commercial banks had disbursed 14.376 trillion yuan ($2.2 trillion) to the financing vehicles of local governments by the end of 2010, said the People's Bank of China, the central bank.

The financing vehicles flourished across the country in 2009 when local governments rushed to borrow money to fund a significant infrastructure building spree. There were at least 10,000 local financing vehicles in the country by 2010, soaring 25 percent from 2008.

"The debt risks are escalating as most of the loans come due during 2011 and 2013", said the China International Capital Corp. Ltd. in a report. "Rubbing salt into the wounds is also rising interest rates."

But Jia Kang, Director of the Research Institute of Fiscal Science, a think tank affiliated with the Ministry of Finance, downplayed the concern, saying the burden remains bearable.

The loans could raise China's debt-to-GDP ratio to around 50 percent, still below the alarm threshold of 60 percent, he said.

Li Yang, Vice President of the Chinese Academy of Social Sciences, agreed. "A serious debt crisis is less likely as the Chinese economy is steering a steady course of growth, and returns from the infrastructures could help cover the debt."

The central bank also pledged to further streamline the financing vehicles and strengthen their standardization and transparency.

"Efforts will also be made to explore alternative channels for local governments to raise financing, such as municipal bonds," the central bank said.



 
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