March 1, 2012 / 2:01 AM / 5 years ago

China local govts struggle to repay highway loans-report

SHANGHAI, March 1 (Reuters) - China's local governments are struggling to service loans taken out for highway construction and are appealing to the central government for relief from interest payments, local media reported.

The cancellation of the road tolls on secondary highways in most provinces is putting major pressure on local government finances, the China Securities Journal reported on Thursday, citing an unnamed source in the Ministry of Transport.

The report adds to concerns about the debt racked up by special-purpose entities backed by local governments in order to finance infrastructure spending as part of the central government's economic stimulus plan in 2008-2010.

"Indeed, one after the other, many provinces have raised the issue, hoping that the government will give discounts on interest payments," the paper quoted its source as saying.

In the past, local governments relied on tolls to defray part of the cost of secondary highway construction. As part of fuel tax reform implemented in late 2008, however, local governments were required to phase out such tolls.

To compensate, the government transfers a portion of fuel tax revenue to local governments. But the transfers are proving insufficient, according to the report. (Reporting by Gabriel Wildau; Editing by Jacqueline Wong)

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