Lenders, officials urged to keep tight leash on local debt units

BEIJING - Chinese officials and banks must clean up their financing of local government-backed investment units under rules unveiled on Sunday, even as a top government think-tank expert said the overall situation is "far from dangerous".

The State Council, or the cabinet, issued a directive warning that some of these quasi-independent financing vehicles, often used by local governments to fund infrastructure projects, were dangerously loaded with debt built up using implicit assurances to banks from local officials.

It marked the country's latest effort to tackle the mounting debt worries of local governments, which analysts have warned could become financial time bombs.