郑州康好医院怎么样:Resolving local government debts Li Hong's column

By Li Hong

The lid over China's local government debt has not been fully lifted, although the banking regulatory authorities in Beijing are cautioning a potentially perilous effect the ballooning debt could have on the country's bank loan safety and economic growth. Market investors are so anxious about the debt woes that whenever a media report emerges, it would lead to a huge sell-off.

Last year, the State Council headed by Premier Wen Jiabao, ordered an investigation into local debts. No official debt numbers have been made public, but most analysts put it at between six to eight trillion yuan. Not all of the local government debts will end in bad loans for the banks, as many projects funded by the borrowings, like the state-of-the-art high-speed bullet trains, are expected to generate stable incomes, which will flow back to service bank loans.

However, it is assumed that a plenty of the loans are now overdue. If the financing and investment arms of the local governments fail to raise sufficient money, they will have to put off a spate of projects which are being built, and default on the loans in arrears - creating a financial crisis in China.

To make things more complicated, the local governments' hands are tied now, as their traditional receipt to fat income by selling land to property developers, is dried up amid Beijing's closing loop on real estate in its attempt to control bubbles.

Beijing has to find a way out sooner than later, as investors' confidence is tested. The resolving of the local debts will not only affect stability of China's banking system, but also sustainability of the country's growth pattern. The decision makers know perfectly well that the tempest of bank debts, which attacked the U.S. economy in late 2008 and early 2009, could assault China and wreck the boat here.

Nevertheless, China is much better positioned and has a handful of options to shoot the problem. Some have suggested the central government in Beijing, full with its coffers, to bail out indebted local governments using taxpayers' money.

It isn't a good idea for Beijing to field all local government debts, even if it is capable of doing it. The local governments have contended that China's current law rules the central government rakes in a predominantly majority of tax revenues, so Beijing is obliged to fill in the blanks incurred by them. But it is against the principle of equality as varied localities have run into different magnitudes of deficit.

Also, at a time of uncertain global economic recovery -- the United States' growth has dipped and Japan has contracted – China needs to have "enough ammunitions ready" to tackle a sudden slowdown. The conceivable measures include fiscal stimulus policy to reduce taxes on Chinese families to encourage their consumption, and to ram up government spending to build up more roads and other infrastructure projects. Therefore, it is short-sighted for the central government to seriously deplete the national coffers.

Others have recommended Beijing bail out the banks. It will be fiercely opposed by the public, because the lenders should be held fully accountable for the non-performing loans which they issued in the first place. Chinese lenders often do not balk at local government borrowing, because past experiences have emboldened them to ignore risks of bad loans, which were always borne by governments, and written off by Beijing.

A possible way could be a combination of new policy design and subsidies from Beijing. The National People's Congress (NPC) could make a new law that will allow China's provincial and city-level governments to sell bonds on the market. At the same time, Beijing could give some subsidies to locals – at a proportion of no more than 20 percent of the debts – to help them pay the arrears.

Only after the local governments get to know the burden of servicing debts -- raised through selling local bonds, they will begin to learn business administration and spend within their means.