China loans secured by land up 30.4 pct y/y at end-2013

BEIJING, April 22 Tue Apr 22, 2014 5:54am EDT

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BEIJING, April 22 (Reuters) - The amount of loans using land as collateral in 84 major Chinese cities rose 30.4 percent by the end of 2013 from a year earlier, the Ministry of Land and Resources said on Tuesday, underlining potential financial debt risks in the country.

The loans increased by 1.77 trillion yuan ($284.23 billion)in 2013, bringing the cumulative total outstanding to 7.76 trillion yuan by the end of last year, the ministry said in a statement on its website, www.mlr.gov.cn

It is common practice for local governments to use land as collateral to raise money from financial institutions, and many rely on such revenues to boost their finances. They have borrowed heavily over the years to pursue investment-driven growth, but rising bad loans and bond defaults have deepened concerns over a possible debt crisis.

However, recent signs of cooling in land prices may reduce the money local governments can borrow and also increase their default risk. Local governments have a combined public debt of some $3 trillion, about one-third of the size of China's economy.

Many property developers and businesses also rely on land collateral to get loans.

Previous figures from the ministry have shown that gains in residential land prices slowed for the first time in nearly two years in the first quarter, and are likely to slow further in the second quarter.

The latest data also showed there were about 403,900 hectares of land being used as collateral in the 84 cities as of the end of 2013, up 15.8 percent from the end of the previous year.

($1 = 6.2274 Chinese Yuan) (Reporting By Xiaoyi Shao and Jonathan Standing; Editing by Jacqueline Wong)

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