BEIJING Nov 8 Chinese local governments are
likely to face rising credit risks as property prices cool, but
the overall level of government debt in China remains well below
international danger levels, a leading domestic ratings agency
said on Tuesday.
"The tightening measures to cool the property market may
further dampen land sales in the future, which could raise local
debt default risks to some extent," Li Yan, a senior analyst at
the China Chengxin International Credit Rating Co, said.
But Li told a conference that China's total local and
central government debt combined, at 43.6 percent of gross
domestic product at the end of 2010, was well below the
international alarm level of 60 percent.
China's state auditor has estimated that local governments
had chalked up 10.7 trillion yuan in debt by the end of 2010,
about half of which amassed during Beijing's stimulus spending
at the height of the 2008/2009 global financial crisis.
Local governments have been servicing much of that debt
through land sales and real estate transaction taxes, both of
which are slowing in response to a slew of tightening steps to
curb the exhuberant property market and fanning worries of a new
wave of debt defaults and bad bank loans.
The weighted-average capital adequacy ratio (CAR) of Chinese
banks stood at 12.2 percent at the end of June, up from 11.8
percent at the end of March, while the banking system had a bad
loan coverage ratio of 218 percent, according to figures from
the China Banking Regulatory Commission.
For a feature story on China's land market, please click
Li said that the overall risks from the local government
debt mountain are manageable as Chinese cities and provinces
could get money from many other channels to secure repayments,
such as tax refunds and transfers from the central government,
as well as municipal bonds issued under a pilot scheme.
China has allowed its first batch of cities and provinces to
sell municipal bonds, borrowing direct from the capital market
to reduce reliance on bank loans.
"Looking in the long run, I think the local government debt
risk is within a controllable range," added Li, whose firm works
in partnership with Moody's Investors Service.
(Reporting by Aileen Wang and Kevin Yao; Editing by Nick