China Debt Solution Seen Aided by Selling Listed Shares: Economy

China Debt Solution Seen Aided by Selling Listed Shares: Economy

China’s swelling local-government debt is spurring speculation that authorities could sell some of their holdings of listed shares, estimated by UBS AG to total at least 5 trillion yuan ($820 billion), to make repayments. Partial divestment of governments’ stakes in state-owned companies is one option to address the debt issue, said Yao Wei, China economist at Societe Generale SA in Hong Kong. Local governments have already made some sales over the past two years and repayment pressures mean that more are likely, said Chen Li, a Shanghai-based analyst at UBS.Officials have the option of turning to the stakes as income from land sales falls and a forthcoming national audit, the broadest in two years, puts a spotlight on regional borrowing. Local-government funding was ranked as most in need of reforms, according to a survey of analysts by Bloomberg News ahead of a key Communist Party meeting next month to discuss economic policies.

“Local governments have various entities and agencies, from pension management bureaus to state-owned asset supervision bodies, to hold shares,” Yao said. “One thing is for sure — the number is in the trillions,” said Yao, who estimated the stockpile at 3 trillion yuan as of 2011.

The benchmark Shanghai Composite Index (SHCOMP) fell 0.7 percent at the 11:30 a.m. local-time break today and is down 5.4 percent this year.

China’s National Audit Office has submitted its report on local-government debt to the State Council and the level of borrowings exceeds 14 trillion yuan, Caijing reported earlier this week on its website.

Long Process

Divestment of government shares is a long-term process and won’t be conducted in a “big bang” way, Yao said. “If local governments come out and announce big share-sale plans, it will send jitters through retail investors and cause stock prices to plunge,” she said.

Elsewhere in Asia today, the Bank of Japan stuck with its campaign of unprecedented monetary easing, intended to jolt the nation out of a 15-year deflationary malaise.

Governor Haruhiko Kuroda’s board maintained a pledge to expand the monetary base by 60 trillion to 70 trillion yen ($711 billion) a year, matching the forecasts of all 34 economists in a Bloomberg News survey.

Taiwan’s economy grew 1.58 percent in the third quarter from a year earlier, the slowest pace in a year, increasing pressure on the central bank to extend an interest-rate pause, a report showed today.

In Europe, Germany reports September retail sales and import prices and the U.K. will see data on October home prices. In North America, Canada may say the economy expanded at a slower pace in August than in July, while the U.S. gives a weekly report on jobless claims.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net