China lending outside the banking sector under control

While loans in China outside the banking sector have increased in recent months - investors shunning banks - the chairman of the Banking Regulatory Commission (CBRC), said Liu Mingkang the risks associated with such loans remained "manageable". History of secure markets or otherwise attempt to limit such practices as implying they could be riskier than it seems?

Remember, Chinese banks have been submitted last year to restrictions on the volume of new loans. In early September, the rating agency Fitch said it could lower the sovereign rating of China in the next two years. Reasons: the heavy debts of the Chinese banking sector, the latter having provided massive loans in recent months.

But outside the banking sector, all is not rosy: credits "parallel" have indeed conduits some borrowers into bankruptcy, particularly in the area of Wenzhou (East), which has about 400,000 companies. In recent months, more than 90 patrons fled the city in debt and two suicides were to be deplored the dead who are forced to face repayments to their creditors. Analysts said at the national level, the informal credit sector would weigh 4,000 billion Yuan (454 billion), about 8% of outstanding bank loans.

In early July, the rating agency Moody's had indicated that for its public debt in China amounted to 36% of its Gross Domestic Product (GDP), taking into account the share of the debts of local governments for which Beijing assume direct responsibility. A few days earlier, the National Audit Office indicated that the debts of the provinces, municipalities and districts in China amounted to 27% end of 2010 China's GDP, representing a total of 1.163 trillion Euros. The same office was, however, insisted that 63% of this debt would be repaid through revenue budget.

But some of these claims, considered doubtful threaten the banking system so that the Credit Suisse sees the same "time bomb" the most dangerous of the Chinese economy. Much less "alarmist" shall we say politely, the Chinese government estimates for its public debt to about 20% of GDP. But it does not include in its calculation the financial elements of local governments, which are however not allowed to borrow directly.

Now where the rub is that they have borrowed huge amounts from the global financial crisis, via means of ad hoc structures called "financing platforms" or PFL. But according to the National Audit Office, the "ability to pay is low and faces potential risks in some areas and in certain industries." Indeed, in a snowball effect, some local governments have had to make new loans ... to repay debts previously contracted, also depends heavily on land sales to meet their deadlines. According to the auditors of governments of China, 108.3 billion Yuan (11.8 billion) of loans were made or used fraudulently, the money ends up in Banks real estate or stock markets.
A bit worried, Moody's said in turn that the Chinese banks lent 8,500 billion Yuan (905 billion) from a total of 10'700 billion Yuan (1.163 trillion Euros) to local governments ... a situation that causes a high risk exposure. "These debts existed before the global financial crisis, but they quickly accumulated over the past two years while investment by local governments has been used as one of the main tools" to revive the economy, adds Moody's.