PBOC quashes rumor of bigger debt
By Zhang Fengming |
July 13, 2011, Wednesday
|
Print Edition
Print Edition
China's central bank became the second state body to quash speculation that local governments' debt may be bigger than an official estimate of 10.7 trillion yuan (US$1.65 trillion.)
An estimate of 14 trillion yuan of local government loans that was previously implied by the central bank is "obviously" too large, the People's Bank of China has said on its website, following the National Audit Office's denial on June 27 that the liabilities are being understated.
The PBOC also made it clear that it feels China can contain the risk from loans to local-government financing vehicles, saying that most of the loans went to projects that will generate enough revenue to service their debt, with only a "small portion" likely to need "financial grants."
The central bank said late Monday that some institutions kept erroneously arriving at 14 trillion yuan of local government loans by assuming such loans formed 30 percent of China's total outstanding loans of 47 trillion yuan at the end of 2010.
Instead, 30 percent, which the central bank mentioned in a June 1 report, was the maximum local debt load from individual provinces. This ratio varied among governments, and none exceeded 30 percent, the central bank said.
Its reasoning is that you cannot use the maximum proportion (30 percent) to multiply China's total outstanding loans at the end of 2010 because both the base (47 trillion) and the proportion (30 percent) are wrong.
It clarified its position days after the June 1 report but some institutions kept using the 14 trillion yuan figure.
"It's against those institutions' professionalism of prudence as we have already stated that the 14 trillion yuan assumption is not accurate," the central bank said.
Though the central bank didn't name the institution it blames, a Moody's Investors Service report shook financial markets when it reported the 14 trillion yuan number.
Last week, the rating firm said Chinese banks' exposure to local government debt may be understated by 3.5 trillion yuan. Moody's cross-examined numbers from the audit authority, the central bank and the top banking regulator.
An estimate of 14 trillion yuan of local government loans that was previously implied by the central bank is "obviously" too large, the People's Bank of China has said on its website, following the National Audit Office's denial on June 27 that the liabilities are being understated.
The PBOC also made it clear that it feels China can contain the risk from loans to local-government financing vehicles, saying that most of the loans went to projects that will generate enough revenue to service their debt, with only a "small portion" likely to need "financial grants."
The central bank said late Monday that some institutions kept erroneously arriving at 14 trillion yuan of local government loans by assuming such loans formed 30 percent of China's total outstanding loans of 47 trillion yuan at the end of 2010.
Instead, 30 percent, which the central bank mentioned in a June 1 report, was the maximum local debt load from individual provinces. This ratio varied among governments, and none exceeded 30 percent, the central bank said.
Its reasoning is that you cannot use the maximum proportion (30 percent) to multiply China's total outstanding loans at the end of 2010 because both the base (47 trillion) and the proportion (30 percent) are wrong.
It clarified its position days after the June 1 report but some institutions kept using the 14 trillion yuan figure.
"It's against those institutions' professionalism of prudence as we have already stated that the 14 trillion yuan assumption is not accurate," the central bank said.
Though the central bank didn't name the institution it blames, a Moody's Investors Service report shook financial markets when it reported the 14 trillion yuan number.
Last week, the rating firm said Chinese banks' exposure to local government debt may be understated by 3.5 trillion yuan. Moody's cross-examined numbers from the audit authority, the central bank and the top banking regulator.
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