China Under Test with CBY1.84T Local Debts Due in 2012


Both Chinese regulators and banks are likely to be under strain in 2012 with as much as 1.84 trillion yuan (about 290 billion U.S. dollars) of local debts due this year.

Local debts across the country had totaled 10.7 trillion yuan (1.69 trillion U.S. dollars) as of the end of 2012, of which the portion due to be repaid in 2012 accounted for 17.7 percent, according to a report issued by China’s audit commission in June 2011.

Following an array of “defaults” and restructurings by the so-called Urban Development Investment Corporations (UDICs), a kind of shell companies that via which loans are channeled into projects in local governments, one of such UDICs in South West China’s Yunnan Province came to light entering 2012.

The provincial UDIC issued 800 million yuan in bonds in late 2012, but the price of its collaterals—shares of a listed arm plunged by at least 70 percent in only two years, the 21st Economic Herald reported.

That is not an isolated case.

In South China’s Hunnan Province, recent attempts to finance highway construction projects, led by the Construction & Development Co., of Hunan Province, have told a similar story about the struggles in local financing vehicles.

China’s rating firm CCXI chopped down the company’s rating in late December from stable to negative on worsening cash flows and rising debts.

Debts in the company, entitled China’s biggest provincial highway financing vehicle, had risen to 133.4 billion yuan by the end of September, 2011, with a debt ratio of 75 percent.

Signs of flexibility in dealing with the issue have emerged. Zhou Mubing, vice-chairman of the China Banking Regulatory Commission announced the authority’s decision to push forward the securitization of credit assets.

“We are now doing some projects of this kind…which will help ease the capital flow crunch, temporarily,” the 21st Economic Herald said, quoting a source with China Development Bank.

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