News agency reported that the central government will pay off some debt and make the local state-owned banks to write off some bad loans. China will also end the ban imposed on provincial governments and municipalities sell bonds.
Cities and provinces, was barred from selling bonds directly to investors, and the creation of about 8800 companies for the financing of infrastructure projects, according to the estimate of group G Credit Suisse. The Herald newspaper said 21 of these entities have business loans totaling 9.09 trillion yuan at the end of November, with 1.77 trillion, which considered the risks of payment, in March.
"Not many of those loans are repaid at the end of the day, the central government is likely to have to save either the banks or local governments, or both, probably, as they did a decade ago, Qinwei Wang, an economist at the China Economy Capital Co.Ltd.
Wang said that the financial position of the Chinese central government is much better than 10 years ago, even after the stimulus spending during the financial crisis. However, the large losses at banks mean that China will have a banking sector is not effective for a few years at least, and may reduce growth. Wang said on the assumption that local government debt of 10 trillion yuan, and the ratio of debt to GDP to 70 percent.
A Comprehensive Review
To reduce the risks for banks, China has increased oversight on lending to local government vehicles, which increased during the stimulus program in the country for two years. In March, Prime Minister Wen Jiabao, a comprehensive review of the domestic debt of the government.
China National Development and Reform Commission, the top economic planning body, the Ministry of Finance, Banking, China Plan of the Organizational Committee to start the cleaning of religion in June and ends in September, Reuters reported yesterday, quoting one of the two people interviewed by the news agency. He said someone else the program may take longer.
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