China downplays local debt, renews push for bonds

China’s Ministry of Finance said yesterday that local government debts are controllable, responding to concerns that record lending to local entities is set to produce a spike in bad loans, Bloomberg reported. An unidentified official was quoted in a report on the ministry’s website as saying that the government will also accelerate research into letting local governments sell bonds; that would replace the current practice of local governments setting up separate vehicles to finance public projects to keep debt off their balance sheets. Outstanding loans to such institutions reached US$1.7 trillion by the end of 2010, and Standard & Poor’s has estimated that as much as 30% of lending to local government entities may turn bad. The finance ministry has drafted a preliminary plan that would allow designated provinces and cities to sell bonds to investors on a trial basis, a person with knowledge of the matter said.