PBOC sounds warning over local government loans

The risk banks face on loans to local governments' financing vehicles is a matter of great concern, the mainland's central bank warned yesterday.

"We should not underestimate the risk of that kind of loans. However, we should not say that the risk has become very high," People's Bank of China governor Zhou Xiaochuan told reporters on the sidelines of the National People's Congress in Beijing.

Zhou said attention needed to be paid to the development of local governments' financing vehicles and their hidden risks.

Analysts had voiced concerns about the asset quality of loans to these financing vehicles, raising doubts about their ability to repay them.

Shang Fulin, the chairman of the China Banking Regulatory Commission, said last week that outstanding loans to government financing vehicles amounted to 9.3 trillion yuan (HK$11.6 trillion) but growth in such loans was under control.

Zhou said the bulk of these loans were for the development of public facilities that would be able to generate income to repay them. Only about 20 per cent needed to be paid out of local governments' budgets, he added.