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S&P: Chinese governments strong enough to avoid defaults
By Hu Xiaocen |
April 16, 2012, Monday
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Online Edition
Online Edition
CHINA'S local governments are strong enough to avoid widespread defaults on financing platforms, despite weakening revenue growth in 2012, Standard & Poor's Ratings Services said in a report yesterday.
The so-called local governments' financing platforms include a wide range of state-owned companies that use government allocated assets and financial subsidies for collateral to obtain loans. Funds obtained by these companies will be invested in urban construction and utility projects.
The local governments have a total debt of 10.7 trillion yuan (US$1.69 trillion), the National Audit Office estimated in June 2011. It has been a source of worry amid comments that some may have trouble repaying, which would pose a great risk to the financial system.
"Most of the local and regional governments have sufficient funds to pay interest for their financing platforms," said Kim Eng Tan, the credit analyst at the rating agency.
And the report also said local governments will ease restrictions on the companies' access to refinancing, while the central government will provide more direct financial support to avoid any systemic crisis.
Government revenue used to guarantee the repayment of debt is expected to grow much slower in 2012 compared with the past two years due to an economic slowdown, continued structural tax cuts and housing purchase restrictions.
However, prudent financial management is likely to help local governments offset such an effect, the agency said.
"A cut in nonessential spending, more effective deployment of financial resources and selling stakes in the companies may avoid a significant worsening of their financial positions," the report said.
The so-called local governments' financing platforms include a wide range of state-owned companies that use government allocated assets and financial subsidies for collateral to obtain loans. Funds obtained by these companies will be invested in urban construction and utility projects.
The local governments have a total debt of 10.7 trillion yuan (US$1.69 trillion), the National Audit Office estimated in June 2011. It has been a source of worry amid comments that some may have trouble repaying, which would pose a great risk to the financial system.
"Most of the local and regional governments have sufficient funds to pay interest for their financing platforms," said Kim Eng Tan, the credit analyst at the rating agency.
And the report also said local governments will ease restrictions on the companies' access to refinancing, while the central government will provide more direct financial support to avoid any systemic crisis.
Government revenue used to guarantee the repayment of debt is expected to grow much slower in 2012 compared with the past two years due to an economic slowdown, continued structural tax cuts and housing purchase restrictions.
However, prudent financial management is likely to help local governments offset such an effect, the agency said.
"A cut in nonessential spending, more effective deployment of financial resources and selling stakes in the companies may avoid a significant worsening of their financial positions," the report said.
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