Local govts set to borrow more

Local government borrowing will become more active as the economy faces increasing downside pressure, but outstanding debts at the local level will continue to decline, according to a senior researcher at the Ministry of Finance.

"The central government expenditure budget of 850 billion yuan ($134 billion) this year will not be adjusted, which indicates local governments will have to borrow more to support infrastructure construction projects to shore up the sliding economy," said Jia Kang, director of the ministry's fiscal science research center.

He made the remarks at the China-Arab States Workshop on Finance Cooperation held in Yinchuan, capital of Ningxia Hui autonomous region.

But this won't be a significant problem, as the authorities are fully aware of the risks lying in such debts and have already taken effective measures, he said.

"The key is to monitor and track the debts in a timely manner, and ensure there is a practical mechanism to deal with possible defaults," Jia said, adding that aggregate local debts will continue to fall as more loans are repaid.

Despite increasing pressure, the officially set GDP growth target of 7.5 percent this year could be fulfilled, as the economy will rebound in the fourth quarter, he said.

"The debt risks could be contained as long as we could ensure those debts grow at a rate of less than 7 percent."

About 20 percent of China's city governments owed debts above 100 percent of their fiscal revenue, while 30 percent of governments at county level had such a debt ratio.

Outstanding debts among local governments totaled 10.7 trillion yuan by the end of 2010, according to official statistics.

Most major State-owned lenders, including Bank of China Ltd, China Construction Bank Corp and Agricultural Bank of China Ltd, reported that they had more outstanding loans from the beginning of the year to the end of June than in the immediately preceding six months.

The banks, adding Industrial and Commercial Bank of China, had 2.6 trillion yuan in outstanding loans on their books by the end of June, up by 500 billion yuan from six months before.