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18 de abril de 2024Beijing has set a strict timetable for the nation’s banks to review local governments’ off-the-books borrowing, the top banking regulator said, in China’s latest step to clear up the murky legacy of last year’s lending boom.
A surge in the hidden debts of local governments has been one of the most controversial side effects of China’s all-out drive to keep up economic growth amid the global financial crisis. Many of the stimulus projects that city and provincial authorities lined up were paid for not by government spending, but by off-budget financing vehicles that borrowed heavily from banks and in capital markets. Now analysts worry that dealing with those debts could weigh down the economy for years to come.
Banks are now required to reassess all the loans they made to local-government companies on a “project-by-project” basis, Liu Mingkang, chairman of the China Banking Regulatory Commission, said Sunday at the Boao Forum for Asia. “By the end of this coming June, all of the banks are required to submit comprehensive reassessment reports to us about that area’s exposure,” said Mr. Liu, who was speaking in English.
Mr. Liu said regulators would follow up in the third quarter with on-the-ground inspections covering more than a third of the 9.6 trillion yuan ($1.4 trillion) in new loans that were made in 2009. If problems are discovered, regulators could require banks to change the terms of some loans, ask for more collateral or write down the value of loans, he said. The strict timetable for banks to deal with local-government debts is backed by top leaders including Vice Premier Wang Qishan and Premier Wen Jiabao, Mr. Liu said.
He and other regulators, including the central bank governor, Zhou Xiaochuan, have in recent months warned about the risks from lending to local-government companies. Major banks have said they will be cutting back new lending to these financing vehicles, which regulators fear may have sponsored commercially unsound projects that will result in future bad debts.
The government’s tough measures to deal with the local-debt problem could reassure investors worried about the longer-term costs of China’s stimulus program. “The thing that makes me confident is that they have recognized the problem and are dealing with it,” Isaac Souede, chairman of Permal Asset Management Inc., a hedge-fund firm that manages about $20 billion in assets, said in an interview Sunday.
Regulators want to make sure banks start making provisions for local governments’ bad debts this year, rather than deferring the problem in the hopes future economic growth takes care of it. “By the end of this year, we must witness some charge-offs. We can never rely upon tomorrow’s story,” Mr. Liu said.
The review process could also give officials a better handle on the scale of the debts accumulated by local governments. Though there are no definitive figures, Merrill Lynch economist Ting Lu estimated in a report last week that local authorities’ financing platforms probably had about seven trillion yuan in debts at the end of 2009, of which six trillion yuan is in the form of bank loans. That is the equivalent of 21% of China’s annual gross domestic product, about the same as all the official debt of the central government.
“The path to the final solution will be bumpy and painful, and markets could be hit more than once,” Mr. Lu said in the report.
But controlling local governments’ debts in the future will likely require bigger changes to the nation’s financial system. Cities, counties and provinces borrowed so much through off-budget vehicles because they have few revenue-raising powers of their own, and little latitude to issue official debt.