China Is Hiding $1.6 Trillion In Debt With Local Municipalities.

Posted: June 27, 2011 in News

China’s local governments have piled up debts of $1.6 trillion, the national audit agency announced Monday, amid mounting concern Chinese banks might be hurt if borrowers cannot repay loans.

It was the first public accounting of massive borrowing by local governments to pay for construction and other spending. The announcement, following months of speculation about the scale of the debt, might help to mollify worries about possible risks facing banks that also lent heavily to help China ward off the 2008 global crisis.

Analysts say some local governments might be unable to repay loans but a banking crisis is unlikely because China’s state-owned lenders are flush with cash and avoided the mortgage-related turmoil that battered Western institutions.

Beijing has flexibility because economic growth is strong and its total government debt is well below that of the United States, Japan and some European economies, said Zuo Xiaolei, chief economist for Galaxy Securities in Beijing.

“But the government must bear the risks in mind and try to prevent the local debts expanding too fast,” she said.

MORE INFO AFTER THE JUMP –> China reports local governments owe $1.6 trillion

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