2012-03-07

China curbs local government borrowing

I've covered the crackdown on private lending in China's weak financial system supported by private lending; crackdown on private lending leads to more business failure. At the National People's Congress meeting this week, there has been talk of a fund to finance small businesses, to offset a drop in private lending. The government is looking to curtail government borrowing as well though, which should have an overall negative effect on credit growth and subsequently the economy.

Beijing cracks whip on local finance
China’s local governments should set up special funds to repay some of the 10,7-trillion yuan ($1,7-trillion) debt they owe and must use all their financial resources to do a "good job" in paying their creditors, Finance Minister Xie Xuren said yesterday.

Mr Xie said China would continue to take measures to ensure debt risks are under control and that Beijing was considering incorporating debts of its local governments into the national budget.

"Various local governments need to set up debt repayment funds to use all their fiscal resources available to repay their debts," Mr Xie told a news conference on the sidelines of China’s annual parliamentary meeting, the National People’s Congress.

"We ordered local governments to do a good job in repaying their debts."
While some economists believe China to Easily Overshoot Official 2012 Growth Target, I've found that once economists and analysts start cutting their forecasts for GDP or company earnings, they tend to be too optimistic and too slow in adjusting them lower (the reverse is also true). With slowdowns in credit, housing, and bursting bubbles, I expect GDP will come on the low side of estimates and may even challenge the 7.5% target.

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