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Financing arms face changes
Date:2010/7/28      View:1111
Four regulators are reportedly considering new rules designed to further put an end to irregularities with the financing arms of local governments.

The Ministry of Finance, the National Development and Reform Commission, China Banking Regulatory Commission, and the People's Bank of China plan to jointly issue an operational rule, following the State Council's notice to clean up the sector, the reported Monday, without citing its sources.

Local governments are required to report the clean-up of their investment or financing arms as late as the end of this year. Such financing arms can not include public facilities - including schools, hospitals and parks - as assets.

The industry shake-up started after the State Council, China's Cabinet, issued a notice stating the sector would be closely watched. These financing arms have bad assets that could be a problem for banks and the country's stable economic growth.

The top banking regulator has already asked banks to inspect the risks on loans issued to such financing arms. The investment projects of these financing arms can be redundant or wasteful, and thus have the potential to threaten banking assets.

Moody's Investors Services said earlier that bad loans are set to rise at Chinese banks with real estate and local government financial vehicles as sources of worsening assets.

Non-performing loans are set to rise, but loss mitigation has had an early start, Moody's said.

About half of all loans to such investment arms need to be serviced by secondary sources, including guarantors, because the ventures can't generate sufficient revenue, Bloomberg News reported, citing an unidentified source.

Banks in China lent a record 9.6 trillion yuan (US$1.4 trillion) last year to support the nation's economic stimulus.
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