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Local debts need central attention

2014-05-22 10:49 Global Times Web Editor: Qin Dexing

Local government debt is now one of the biggest risks to China's financial system.

By the end of 2013, local government loans had swelled to nearly 18 trillion yuan ($2.88 trillion), up more than threefold from 5 trillion yuan as of the end of 2007.

Authorities in several cash-strapped localities have already turned to the lightly regulated shadow banking market for cash to fund development projects - or in some cases to service existing loans.

Meanwhile, many local governments around the country remain dangerously reliant on revenue from land transfers to pay for daily operations. With the housing market entering into a downswing though, weakening land values threaten what has long been a prime source of fiscal income.

Central leaders need to evaluate local debt risks from all angles and defuse problems now before the situation gets out of hand.

The first step for policymakers should be to open more transparent financing channels and bring local borrowing under closer central oversight.

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