Beijing tightens controls over local government loans

Beijing is tightening controls over loans issued to local government companies as concerns rise over their ability to pay back the debt, the Wall Street Journal reported. A report in the Shanghai Securities News said Wednesday that banks had been issued orders to halt loans to investment vehicles established by local governments; such companies are often set up to sidestep rules prohibiting local governments from going into debt, and are typically backed only by local government’s future revenue. It is unclear how much debt has been accumulated in this way, with estimates ranging from US$878 billion to as high as US$1.6 trillion. The move to control such off-balance-sheet borrowing comes as Beijing has tried to slow down bank lending. China’s banks issued US$200 billion in new loans in January.