Money

China to cut bank loans to local govts

(Agencies)
Updated: 2011-03-07 10:04

China is cutting the size of outstanding bank loans to local government financing vehicles, Liu Mingkang, the head of China's bank regulatory body, was quoted as saying on Monday.

Liu, the chairman of the China Banking Regulatory Commission (CBRC), was quoted by the China Securities Journal as saying that Chinese banks were ordered not to extend any new loans to these vehicles unless they were for affordable housing development.

Related readings:  China should be aware of local govt debt risks: Official  hina begins selling $5.27b of local gov't bonds  Local govt financing 'cleanup' to be started  China banks say local debt risk 'controllable'

Liu added that the full-year new loans in 2011 were expected to be 7.5 trillion yuan ($1.12 trillion), based on a target of 16 percent growth in M2 money supply.

Chinese banks have extended a huge amount of loans, which some researchers have estimated at $10 trillion yuan, to local government finance vehicles since China started its massive economic stimulus package in late 2008.

Economists fret that many of the projects they are funding will never be profitable, saddling banks with bad loans.

Liu added that the CBRC is also checking bank loans to property developers for risk control, but banks are still allowed to lend to property developers.