BEIJING, Oct. 19 (Xinhua) -- A senior Chinese official said on Wednesday that the debt risks facing local governments are controllable despite concerns of default on the 10.7 trillion yuan (about 1.7 trillion U.S. dollars) of debts registered as of the end of last year.
Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), made the remarks in a speech published on the CBRC's website.
Liu said that the risks are generally under control given that the scale of the debt, the debt structure, and repayment capabilities are all pointing toward a positive outlook.
He said that the 10.7 trillion yuan of local government debt accounted for only 26.9 percent of GDP in 2010, while the outstanding central government debt accounted for 17 percent.
To combine the financial bonds issued by the nation's policy financial institutions, which accounted for 6 percent of GDP, the Chinese government's debt-GDP ratio was only around 50 percent, which was below the warning mark of 60 percent, and far lower than the ratios in debt-stricken Europe and the United States, Liu said.
In terms of structure, 80 percent of the local government's debts raised through local government's financing vehicles (LGFVs) are owed to banks. Liu said that the CBRC is urging the banks on lending contracts with the LGFVS to normalize the contracts as commercial loans if plausible.
The banking regulator also said the local government will be responsible for the loans of the LGFVs. The local government should urge the LGFVs to regulate the loan contracts and improve mortgage conditions.
With a long-term view, the local government's debt repayment capabilities are also strengthening given that the growing economy boosts fiscal revenues. Last year, the government's fiscal revenues rose 21.3 percent year on year.
Further, Liu said that a large number of assets held by the local governments can be liquidated, which further guarantees repayment.