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Recent China research
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An optimistic hint on local loans
ICBC has lifted a corner of the curtain on how China's "dynamic micro-management" of loans to local authorities is faring. The country's biggest bank by market value says outstanding loans to local authorities have been reduced to Rmb515 billion (US78.5 billion) from Rmb650 billion a year ago. The bank estimates that 63 of the borrowers have the ability to pay in cash and that the risk exposure to local governments is Rmb212 billion (US30 billion) with a current ratio on NPLs on these local loans running at only 0.3 per cent.
Agricultural Bank of China is also expressing confidence about local governments being able to keep up with payments.
These figures may be on the sunny side and do not allow for doubtful loans with longer maturity, but the dire predictions of 2009 that the whole system would come crashing down as local government platforms failed to meet their payments seem to be another instance of the China boom-and-bust syndrome that infects so many commentators. Of course there are problems, and the central government’s descent on the Railway Ministry is bound to turn up some nasty examples of over-spending and misallocation, but, as we have argued in a past report, state finance at the central and local level is a lot stronger than the doomsters suggest.