China: Local govt debts under control or going toward financial crisis?

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ina: Local govt debts under control or going toward financial crisis?

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In most of mainland Chinese newspaper, banks managers, government officials, and Chinese economists said Local government debts are under control.


However, a different voice came out from one mainland Chinese newspaper: A case in Yunnan province.

Following the first different voice, one Hong Kong newspaper reported another case in Shanghai.

Because we can read those positive prospects easily from any media. Here I copy that 2 negative prospects (or possible risks).


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I think It's good for us to read different voices. Their different evidence supports and conclusions could give us more information.

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In China, local government can get bank loans through type of routes. One route is the local financial platforms. Via this route, local government got bank loans RMB 1.5 trillion bank loans at the end of 2008; local government got RMB 10 trillion bank loans at the end of 2010.

No risk in debts owed by local government- the bad debts rates through local financial platforms were lower than 1%, said by Banks in China after their internal audits (self-inspection) in Annual reports which released in 2011-03.

However a serious risk was revealed in in 2011-06, One company said it can't pay back RMB0.1 trillion debts any more.
In 2011-06, Yunan high-road construction company, which is owned by Yunan provincial government and found in 2006, delivered a risk document. it can't pay back bank loans about RMB 0.1 trillion. It is about 1% of debts the whole local government of China. This document scared Banks CEOs in Beijing. Those CEOs (also minister-level government officials) hurried to Yunan province. At last Yunan provincial government promised to reconstruct the debts and took back that risk document temporarily.

In Yunan province, there are about 20 Yuan provincial government-own companies including that Yunnan high-road construction company have gotten bank loans through the local financial platforms.

The financial revenue of Yunan province:
The total financial revenue of the whole Yunan province was RMB 0.15 trillion in 2009. The total financial revenue of the whole Yunan province was RMB 0.18 trillion in 2010. The annual growth rate was 21.4%. The total financial revenue in the first 4 months in 2011 grew 28% than the same months of 2010; but the government spending grew 35.3% at the same time. GDP of Yunan province was 0.72 trillion in 2010. Financial revenue of Yunan government/GDP = 25%.

If 10 such companies couldn't pay back their debts, many Banks in China would have to go bankruptcy.
10 * RMB 0.1 trillion = RMB 1 trillion.
One government officials in Central Bank of China said that central government of China won't ignore the problem. It isn't only an economic problem but also a political problem. Central government knew many bank loans would go to bad debts when Central government instructed Central government-own banks to borrow huge money to local government. Central government have to shoulder the possible loss, less or more.

From the latest report released by Audit bureau of China, at least 22 region-level municipal government and 20 country-town-level municipal government have to get new bank loans to pay back more than 22% of their old bank loans. Such kind of borrow new to pay back old was more than RMB 0.1 trillion in the total RMB 10 trillion government debts at the end of 2010. 4 region-level municipal government and 23 country-town-level municipal government were late in payments of more than 10% of their total debts at the end of 2010.




2011-06-27
source: Finance magazine of China
h ttp://cover.caing.com/platforms/

2011-06-28
source: #1 finance newspaper
h ttp://finance.sina.com.cn/roll/20110628/011610055347.shtml

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From the above news report, Central government-owned banks and local government of China adopted the same tactics.

Delaying the possible or potential financial crisis, if there was one.

The government officials in Banks, such as Chairman and CEO, and the officials in local government, such as Party secretary and provincial governor and mayor would be free of any political, or economic, or moral penalty if the risks were revealed or the crisis took place after officials retired or after were appointed to another position in another province or another industry according to the present practices in Mainland China.

dusty1

zzzz

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Shenhong investment company is a Shanghai municipal government-own company.

A Hong Kong media reported that Shenhong investment also got huge bank loans through that local financial platforms.  It said that Shenhong company planned to stop paying back the debts from this month, requested to extend the payments, reconstruct the present loans to fixed rate mortgages.

In the press conference of 2011-06-29, Shanghai government said it was a serious  wrong news report and was greatly different from the truth. That company in that news report is not Shentong company.
Journalist from #1 financial newspaper contact the person in charge of the local bank. The  person in charge of the local bank replied that the bank did agree to extend the payments and accomplished the reconstruction of the present loans to fixed rate mortgages. The same time, that person explained that the changes was not from the potential risks but normal business adjustment.

Journalist from #1 financial newspaper also contact the chairman of Shenhong. Chairman of Shenhong company replied that it was only a normal business adjustment.

So Shanghai municipal government did partly mislead the public in the press conference yesterday.

2011-06-30
source: #1 financial newspaper
h ttp://money.163.com/11/0630/02/77OTBAT400253B0H.html

[ Last edited by 468259058 at 2011-6-30 12:05 PM ]

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