June 13, 2011 / 9:10 AM / 7 years ago

China local govts borrowed around $1.4 trillion -c.banker

BEIJING, June 13 (Reuters) - Chinese local governments have borrowed slightly more than 9 trillion yuan ($1.39 trillion) of bank loans via special financing vehicles, a central bank official told Reuters on Monday.

The pile of debt incurred by local Chinese governments is seen by many as a key threat to the world’s second-largest economy as an estimated 20 to 30 percent of the loans are deemed to be at risk of defaulting.

The central bank official, who declined to be named because he is not authorised to speak to the media, played down the risks of local government debt to China’s economy.

“Although some projects are white elephant buildings without any cash flow, China has a very healthy fiscal position and is able to address the risks,” the official said.

The 9 trillion yuan figure given by the official is well under estimates by some analysts that Chinese local governments have borrowed as much as 14 trillion yuan.

Analysts had derived that 14 trillion yuan number based on recent remarks by China’s central bank that less than 30 percent of outstanding loans in the country were lent to local governments by the end of 2010.

“A figure of 9 trillion yuan is relatively reasonable while a figure of 14 trillion yuan is too big,” the central bank official said.

Despite widespread investor worries about the liabilities of local Chinese governments, Beijing has been tightlipped about the situation, in part because investigations are still ongoing.

Two sources told Reuters last month that Beijing has determined that local governments have borrowed around 10 trillion yuan after months of investigation.

To clean up the local debt mess, the sources said Chinese regulators plan to move 2-3 trillion yuan of debt off the books of local governments, and may force China’s four biggest banks to share with Beijing some of the losses incurred from the bad debt. ($1 = 6.480 yuan) (Reporting by China economics team; Editing by Jacqueline Wong)

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