Opinion

Curb local financing

(China Daily)
Updated: 2010-05-29 16:13

The latest effort of the State Council to strengthen management of provincial and regional financing companies highlights the growing concern over their excessive borrowing.

To maintain healthy, sustainable economic development and social stability, the central government has told local authorities to deal on a priority basis with debt repayment and financing for under-construction projects.

The rapid build-up of local governments' debts contributed greatly to the V-shape rebound of the national economy last year, even though the world was still going through the worst recession in decades.

But with the central government thinking of easing its stimulus, the growing debts of local governments' investment vehicles seem to pose more risks than bring benefits to the economy.

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The total debt of 10 of the 31 provincial and regional governments' investment vehicles has reportedly exceeded their GDP because of the ongoing investment boom. And they account for a "very high proportion" of last year's record bank lending of 9.6 trillion yuan ($1.4 trillion).

Since emerging signs of overheating have forced the central government to rein in credit growth, local governments should temper the pace of investment in infrastructure projects to ease concerns over waste and debts.

The latest effort to enhance regulation of the financial arms of local governments is the right step to prevent the stimulus-driven lending boom from leaving lenders with a mountain of bad loans.

The cleaning act will not be easy because of the size of such debts. But the robust growth of the national economy will give the local governments time to repay the debts if they spring into action now.