Flexible measures needed

There has been much chatter about bank loans to local governments' financing vehicles, widely regarded as one of the main risks facing the Chinese economy. Set up by local governments to borrow money for infrastructure investments, these vehicles are rather like Western companies' special purpose vehicles. They have played an important role in stimulating the Chinese economy and helping it to recover from the global financial crisis. But they face a problem, too:The bank loans they have received have increased extraordinarily.

Local governments at all levels have set up their investment companies, some of which are directly controlled by the leaders responsible for fundraising for their pet projects. These companies take a variety of forms depending on the industries and sectors they belong to.

There are thousands of such companies across the country, which sometimes are even irregular. Some of them, particularly those operating at the county-level, will not be able to service their debts.