Risk in lo­cal govt debt ‘well un­der con­trol’

Pre­cise amount of out­stand­ing re­gional au­thor­ity loans un­known

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

The risk el­e­ment of lo­cal govern­ment fund­ing ve­hi­cles is well un­der con­trol, said Shang Fulin, head of the China Bank­ing Reg­u­la­tory Com­mis­sion in an in­ter­view with CCTV on Fri­day.

Shang said in gen­eral the risk ex­po­sure of lend­ing to lo­cal gov­ern­ments is small be­cause most of the loans are long-term and con­tained by ef­fec­tive reg­u­la­tions and con­trols.

It is pos­si­ble that there will be de­faults on some lend­ing to lo­cal gov­ern­ments. The com­mis­sion will clas­sify the lend­ing and take var­i­ous mea­sures to man­age it, said Shang.

By the end of June, out­stand­ing loans via lo­cal govern­ment fund­ing ve­hi­cles stood at 9.7 tril­lion yuan ($1.57 tril­lion), up 6.2 per­cent year-on-year. The growth rate was 9 per­cent­age points lower than the aver­age growth rate for all cat­e­gories of bank­ing loans, ac­cord­ing to the com­mis­sion’s data.

The growth of lend­ing to lo­cal govern­ment projects slowed, while non- lend­ing fund­ing to lo­cal govern­ment fund­ing ve­hi­cles in­creased, ac­cord­ing to the com­mis­sion’s data.

“Most of the new lend­ing to lo­cal govern­ment fund­ing ve­hi­cles in 2013 went to projects that are in their fi­nal phase. As the to­tal amount of lend­ing in­creases, low ef­fi­ciency of the use of funds and a lack of sol­vency may be ob­served,” a note from the com­mis­sion re­leased on Fri­day said.

Shang said the com­mis­sion will take var­i­ous mea­sures to man­age the risks of lend­ing to lo­cal govern­ment fund­ing ve­hi­cles, in­clud­ing con­trol­ling the to­tal loan amount, in­creas­ing as­set-backed fi­nanc­ing and es­tab­lish­ing a long-term mech­a­nism to push for­ward the op­ti­miza­tion of the credit struc­ture of lo­cal gov­ern­ments.

The pre­cise amount of re­gional and lo­cal gov­ern­men­tre­lated debt out­stand­ing is un­known. In June, the National Au­dit Of­fice pub­lished a more limited sur­vey of 15 prov­inces, three mu­nic­i­pal­i­ties, 15 provin­cial cap­i­tal cities and three dis­tricts. It showed their debt had con­tin­ued to rise but at a rel­a­tively mod­est level of 13 per­cent over the two years up to 2012, the note said.

“China’s au­dit of lo­cal govern­ment debt will im­prove trans­parency,” said Katie Chen, an an­a­lyst with the sub-sov­er­eign group at Moody’s In­vestors Ser­vice Bei­jing Ltd.

In re­sponse to mount­ing con­cerns over trusts and wealth man­age­ment prod­ucts — which are con­sid­ered to be “shadow bank­ing” by many peo­ple — Shang said the risk el­e­ment in th­ese prod­ucts is con­trol­lable.

“Growth rates of such prod­ucts are not sig­nif­i­cant. The bal­ances of th­ese prod­ucts are ba­si­cally the same as that of last year,” said Shang.

The bal­ance of wealth man­age­ment prod­ucts was 9.08 tril­lion yuan by the end of June, with non-stan­dard credit as­sets to­tal­ing 2.78 bil­lion yuan, 7 per­cent short of the level recorded in late March, when the com­mis­sion re­leased a no­tice on reg­u­lat­ing the wealth man­age­ment prod­uct busi­ness of the coun­try’s com­mer­cial banks.

Shang said risk pres­sures in­creased in the first half of 2013 when there was a slightly higher non-per­form­ing loan rate at 0.96 per­cent be­cause of the short-term volatil­ity of the money mar­ket.

Lenders need to keep a close eye on their liq­uid­ity man­age­ment, said Shang.

“The liq­uid­ity crunch in June was a les­son to lenders that at all times the man­age­ment of lenders must fol­low the prin­ci­ple of pru­dence. Safety and liq­uid­ity are al­ways vi­tal in the bank­ing sec­tor and fi­nan­cial sys­tem,” said a CBRC note on Fri­day.

Shang Fulin, head of the China Bank­ing Reg­u­la­tory Com­mis­sion

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