China to further check local government financing

Local governments are raising funds illegally despite various measures to put a cap on their debts, an official statement said on Monday.

Offences include building public projects through illegal build-transfer (BT) contracts, cash top-ups or guaranteeing financial vehicles illegally and raising money against the law through financial corporations, loan and trust companies and finance leasing firms.

The statement was issued by the Ministry of Finance, the National Development and Reform Commission, the People's Bank of China and the China Banking Regulatory Commission.

The statement requires more efforts to check illegal fund-raising, standardize governmental fund-raising through BT contracts, monitor top-ups for financial vehicles, standardize fund-raising for financial vehicles and prevent illegal credit guarantee by local governments.

China has been alerted over the risks of local government debts. Analysts are worried that if a certain proportion of the loans goes sour, it will push up non-performing loan ratios in the banking industry and threaten banks' credit ratings.

Local governments typically invested the money they borrowed in building infrastructure.

Local government debts stood at 10.72 trillion yuan (1.59 trillion U.S. dollars) by the end of 2010, according to data released by the National Audit Office.