Local government financing platforms have “prominent potential risks” that pose grave challenges to controlling debt, the China Banking Regulatory Commission (CBRC) said

May 24, 2013 Leave a comment

05.22.2013 15:58

Risks in Financing Platforms Pose a Challenge, CBRC Says

Regulator’s calculations show debts have risen to 9.5 trillion yuan, 50 percent more than government revenues last year

By staff reporter Wen Xiu

(Beijing) – Local government financing platforms have “prominent potential risks” that pose grave challenges to controlling debt, the China Banking Regulatory Commission (CBRC) said in a recent meeting. The debts they have taken on are a heavy burden on public finance, the banking regulator said. The CBRC’s calculations show that the amount of outstanding platform debts has reached almost 9.5 trillion yuan this year, not including those borrowed through trust products. That is more than 50 percent higher than local governments’ revenue last year, and up to 40 percent of the debts will mature within the next three years. The CBRC aims to stop platform loans from further increasing and wind down existing loans orderly while guaranteeing the financing needs of important projects. But the task is getting harder to achieve because local governments are electing leaders and new officials always tend to splash out on investments, the regulator said. The platforms have increasingly relied on bank loans to finance new projects because most other channels to raise funds have been blocked over risk concerns, the CBRC said. That said, the banking regulator noted that some financing platforms had been circumventing restrictions to borrow through less-regulated channels because they could not get loans from banks. Many local officials resorted to personnel connections with bankers to try to get more loans, a bank executive said. But that means cutting into others’ lending quota because the overall amount of loans banks can make to financing platforms had been capped, he said. That is all the more concerning from a regulatory perspective, the CBRC said, since local small banks could be forced to bend lending rules.

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