Beijing to keep tabs on local fundraising

Beijing will release regional financing figures from this year to better monitor fundraising activities as lower-level governments unveil ambitious plans to increase investment.

The People's Bank of China will start publishing regional data of total social financing (TSF), an indicator of liquidity in the real economy, from this year, according to Pan Gongsheng, a deputy governor of the central bank.

TSF includes bank lending, bond and equity issues, trust loans and entrusted loans. It rose 23 per cent from 2011 to a record of 15.76 trillion yuan (HK$19.6 trillion) last year, and is set to rise further this year due to urbanisation and business expansion.

"Starting in 2013, the central bank will not only publish national TSF, but also regional TSF," Pan told an economic forum at the weekend. "TSF is an important indicator to help strengthen and improve financial and macroeconomic supervision and risk control."

Mainland banks are facing mounting risks as highly indebted local governments seek massive funding for construction projects to pursue higher economic growth.

The China Banking Regulatory Commission told lenders the "baseline" and the "top priority" this year were to prevent "systemic risk" and "regional risk".

In all, 19 provinces have set an annual fixed asset investment growth target of more than 20 per cent for this year, according to local government reports. Among them, Xinjiang, Gansu, Guizhou and Heilongjiang have targets that are 30 per cent or higher.

Many local authorities expect slower revenue growth and will consider raising debt to finance capital investment, according to the local government reports.

"The findings are credit negative for the local governments because taking on more debt would add to their already high indebtedness through the activities of their financing conduits, local government financing vehicles (LGFVs)," analysts at Moody's Investors Service said. "The reports are also credit negative for Chinese banks because more debt at already debt-laden LGFVs would deteriorate the asset quality of banks' LGFV loan portfolios."

Local government liabilities reached 10.7 trillion yuan in 2010, or 101.4 per cent of their annual revenues that year, fuelled by borrowing for economic stimulus during the global financial crisis. This debt grew a moderate 300 million yuan, or 2.8 per cent, in 2011. Official data for last year is not available yet.