Business

Loans to China local authorities 'at risk'

Yuan notes
Image caption Loans were made to local authority finance vehicles to help stimulate the economy

More than one quarter of loans to Chinese local government are at risk of default, according to a report.

About two trillion yuan ($300bn; £187bn), or 26% of the 7.66tn in loans to local authority financing vehicles, is at risk says state media.

The figures, published in the official China Securities Journal (CSJ), were slightly higher than prior estimates which put 23% of these loans at risk.

In 2009, banks lent heavily to regional financing vehicles for construction.

It came after Beijing called for nationwide efforts to boost the economy.

But the government has now promised deal with the chaos left by that surge of stimulus spending, introduced last year to counter the global financial crisis.

Local governments are banned from borrowing, so to get round this thousands of hybrid local government-company bodies were founded.

These financing vehicles were able to contravene the regulations and used the funding they obtained for infrastructure projects.

'Serious risk'

However, the CSJ, citing a government investigation, says adequate repayments are being made on only 24% of the debt owed by these local government financing vehicles.

And about half of the total loans went to projects run by local authority investment vehicles that are now unable to fully meet their repayments.

These must now be covered by the local governments or with collateral.

And the final 26% of cash may never be repaid.

This is where money went to projects that failed to meet official regulations, faced "serious default risk", or was embezzled, the CSJ report said.

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